Abstract
Some seasonal products have limited sales season, and the demand of such products over the sales season is of increasing-steady-decreasing type. Customers are highly sensitive to the prices of the products. In such situation, adjustment of unit selling price is needed to accelerate inventory depletion rate and for determining order quantity for the sales season. In this paper, we focus on the issue by jointly determining optimal unit selling prices and optimal lot size over the sales season. Unlike the conventional inventory models with pricing strategy, which were restricted to prespecified pricing cycle lengths, that is, fixed number of price changes over the time horizon, we allow the number of price changes to be a decision variable. The mathematical model is developed and existence of optimal solution is verified. A solution procedure is developed to determine optimal prices, optimal number of pricing cycles, and optimal lot size. The model is illustrated by a numerical example. Sensitivity analysis of the model is also carried out.
Highlights
Items like fashion apparel, hi-tech product parts, periodicals, Christmas accessories, and so forth, have limited sales season and become outdated at end of season
Ramp-type time-dependent demand pattern is very close to the demand pattern in such situations
Manna and Chaudhuri [6] have developed a production inventory model with ramp-type two time periods classified demand pattern where the finite production rate depends on demand
Summary
Hi-tech product parts, periodicals, Christmas accessories, and so forth, have limited sales season and become outdated at end of season. Most of the related papers either permit for continuous price changes or presume that the firm operates in a multiple-period environment with time-invariant demand characteristics in each period The former assumption differs from our work since we assume that the total number of times and that price can be changed are limited, which is significant when there are costs associated with each change. The latter assumption differs from our work since we model demand during the period as a more general time-dependent ramp-type function of time This type of demand pattern with price sensitivity is most relevant for the products that belong to seasonal class because of the limited sales season and nature of their requirements. We develop a suitable algorithm to determine the number of price changes, joint optimal lot size and optimal prices for maximizing profit over the finite season
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