Optimal Inventory Decisions Research Articles

Queuing approach and optimal inventory decisions in a stochastic supply chain network design

This paper addresses an integrated multi-echelon location-allocation-inventory problem in a ‎stochastic supply chain. In a bid to be more realistic, the demand and lead time are considered ‎to be hemmed in by uncertainty. To tackle the proposed supply chain network design problem, ‎a two-phase approach based on queuing and optimization models is devised. The queuing ‎approach is first deployed, which is able to cope with inherent uncertainty of parameters. ‎Afterwards, the proposed supply chain network design problem is formulated using a mixed‏-‏integer nonlinear model. Likewise, the convexity of the model is proved and the optimal ‎inventory policy as closed-form is acquired. Inasmuch as the concerned problem belongs to ‎NP-hard problems, two meta-heuristic algorithms are employed, which are capable of ‎circumventing the complexity burden of the model. The numerical examples evince the efficient ‎and effective performance of the solving algorithms. Lastly, sensitivity analyses are conducted ‎through which interesting insights are gained.

Capacity Allocation and Compensation in a Dual-Channel Supply Chain under Uncertain Environment

The dual-channel supply chain is widely adopted by main manufacturers, potentially incurring channel conflicts between the traditional retail channel which is owned by the independent retailer and the online channel which is directly managed by the manufacturer. The purpose of this paper is to deal with the scenario where channel conflicts may arise under production capacity uncertainty, when the manufacturer tends to privilege the direct selling channel over the retail selling channel. To achieve the goal, this paper establishes a Stackelberg game model consisting of a manufacturer and a retailer, studies the scenario where the manufacturer satisfies the direct selling channel first in the presence of capacity uncertainty, employs the decision optimization and the backward induction method to find the optimal inventory decision in the direct selling channel and the optimal order quantity decision making in the retail selling channel, and designs a compensation mechanism aiming to coordinate the channel conflict in the decentralized decision-making process. Results show that the optimal decisions aiming to maximize the expected profit of each supply chain member are not able to maximize the expected profit of entire dual-channel supply chain. However, when the manufacturer compensates the retailer’s profit loss based on the unsatisfied order and, in the meantime, adjusts the wholesale price to prevent the retailer which obtains the compensation from increasing order significantly, the compensation mechanism can coordinate the decision of each supply chain member, mitigate the channel conflict, maximize the expected profit of entire dual-channel supply chain, and achieve the Pareto improvement of supply chain members’ expected profit in the decentralized decision-making process.

Robust optimal inventory and acquisition effort decisions in a hybrid manufacturing/remanufacturing system

ABSTRACTThis paper considers a stochastic multi-period inventory and acquisition effort decisions problem in a hybrid manufacturing/remanufacturing system. Different from past papers, two factors are introduced into the dynamic decision problem. One is the dependency between sales and returns, the other is the dual impacts of acquisition effort on the return of used products and the demand. Few past papers consider them, but they are important and unavoidable for many practical cases. These factors make the problem a high-dimensional decision-making problem, which is difficult to analyze and solve the optimal policy by stochastic dynamic programming, so we employ the robust optimization method. Based on the duality theory, an equivalent robust optimization model is given, which is a convex programming problem. By numerical analyses, we analyze the effects of system parameters on the related decisions and profits, which can provide insights for producers to manage their hybrid manufacturing/remanufacturing systems.

Optimal pricing strategy with disappointment‐aversion and elation‐seeking consumers: compared to price commitment

AbstractUnder a mark‐down policy, strategic consumers will deliberately delay the purchase of products at a low price. When strategic consumers consider basic valuation, shortage probability, selling price, etc., and then expect that they cannot buy the product at a low price, they feel a sense of disappointment; otherwise, they feel a sense of elation. In addition, when the effect of disappointment on utility is greater than that of elation, strategic consumers are disappointment averse; on the other hand, they are elation seeking. Thus, we consider optimal pricing and inventory decisions of a firm where strategic consumers are disappointment averse and elation seeking, respectively (i.e., they are emotionally rational). The results show that, there exists a unique rational expectation (RE) equilibrium in this scenario. In addition, disappointment aversion alleviates strategic consumer behavior and increases the firm's price, inventory, and profit, whereas elation seeking does the opposite. Moreover, we compare price commitment to the RE equilibrium when strategic consumers are emotionally rational. The results show that, unlike the rationally unemotional case, when the disappointment‐aversion level is above the threshold, the optimal strategy for the firm is the RE equilibrium. Conversely, when strategic consumers are elation seeking (or the disappointment‐aversion level is smaller than the threshold), the optimal strategy is price commitment.

Joint pricing and inventory strategies in a supply chain subject to inventory inaccuracy

This paper focuses on pricing strategies, inventory policies for a supply chain when Radio Frequency Identification (RFID) technology is adopted to cope with inventory inaccuracy. The supply chain consists of one supplier and one retailer, in which the RFID tag price is shared between the supplier and the retailer. We present and compare the performance differences between a wholesale price contract and a consignment contract when the retailer is the Stackelberg leader and the supplier is the follower. Based on the optimal pricing and inventory decisions, an interesting observation of contract selection is that there are two critical values of inventory available rate such that when the inventory availability is less than the lower value, both the supplier and the retailer prefer a consignment contract; when the inventory availability is greater than the upper value, a wholesale price contract is their best choice; when the inventory availability is between the two values, the supplier prefers a wholesale price contract and the retailer prefers a consignment contract. Additionally, there exist threshold values of RFID tag price and sharing rate to determine the contract preference for the retailer. Furthermore, the profits of both the supplier and the retailer are independent of the RFID tag price sharing rate in a wholesale price contract, and the supplier has the incentive to invest in RFID tag cost in a consignment contract.

Designing a Centralized Distribution System for Omni-Channel Retailing

We study the optimal supply chain design for a dual-channel retailer that operates a physical and a web-based store, and traditionally, managed each one separately. However, with increased pressures from customers and decreased profits due to marked down leftover inventories in each channel, the retailer considers integrating the supply chain operations of both channels. In contrast to the existing literature, we focus on the firm's choice on the best omni-channel strategies considering demand segmentation, cost structure, and more importantly, the execution ability of the firm. We formulate our problem as a two-stage stochastic programming model and use first-order optimality conditions to study the optimal inventory replenishment decisions. Based on different omni-channel strategy decisions, we explore four supply chain design options. We identify the optimal inventory replenishment policy under each option and explicitly describe the optimality conditions on cost and demand under perfect and imperfect demand information. When the demand information is imperfect, the demand fulfillment decisions can be characterized as nested protection-level policies. First, we show that omni-channel strategies are not necessarily profitable under all settings as imposed by the market conditions. Second, we demonstrate that when the company can allocate its inventory perfectly, running omni-channel strategies may help serve not only the web-based customers but also in-store customers better. Finally, we demonstrate that, in the worst case, the imperfect demand information may result in losing all of the claimed inventory pooling benefits when running omni-channel strategies.

Effects of Consumers’ Strategic Behavior and Psychological Satisfaction on the Retailer’s Pricing and Inventory Decisions

This paper introduces a concept of psychological satisfaction to describe the utility of customers under different psychological perception. It studies the purchase behavior of strategic customers based on their psychological satisfaction and analyzes its impacts on the optimal pricing and inventory decisions and the corresponding profit of retailers. The following conclusions are got in this study. (i) Compared to psychological neutral strategic consumers, the behavior of the psychological elation strategic consumers will further induce the retailer to lower price and reduce inventory, thereby further damaging the profits of the retailer. And the stronger the emotion of psychological elation, the greater the loss of damage. (ii) The behavior of disappointment aversion strategic consumers will alleviate the adverse effects of their strategic behavior on the retailer's profit to a certain extent. And the stronger the disappointment aversion emotion, the more obvious the alleviating effect it has. (iii) Considering the effect of consumers' psychological satisfaction, the retailer's pricing is positively correlated with product cost and the valuation of consumers, and negatively correlated with the salvage price. The retailer's inventory is positively correlated with the salvage price and the valuation of consumers, and negatively correlated with product cost. The profit of the retailer is positively correlated with the valuation of consumers, but the relationship between the retailer's profit and product cost or the salvage price depends on other parameters.

On the Optimality of Inventory and Shipment Decisions in a Joint Three Echelon Inventory Model with Finite Production Rate under Stock Dependent Demand

Abstract This paper develops a mathematical model for a joint three-level supply chain with a single manufacturer (may be a supplier) supplying a single kind of product to a single distributor (may be a wholesaler) and then to a single retailer (may be a buyer). The model is developed for finite production rate and the product demand is expressed in terms stock level. In the proposed work, ordering/setup costs, carrying costs and transportation costs are considered for model development. Optimal inventory and shipment decisions are treated as decision variables. The objective of the proposed model is to demonstrate the optimality of decision variables under the novel idea of stock dependent demand. Also aimed at studying the optimal annual net revenue and total relevant costs of the respective entities and the supply chain. Computer programme is written in MATLAB with respect to the optimality criteria derived and the model is solved with the help of case study data. Also the sensitivity analysis is carried out to show the variation in optimality of decision variables and objective function with respect to model parameters. Finally few managerial implications are discussed from the research findings.

Research on Inventory Decision of Loss-aversion Firms under Debt Financing

By constructing the optimal inventory decision model of loss-aversion firm with and without debt, we analyze the influence of debt on firm’s inventory decision, and discuss the influence of loss aversion, production cost, and shortage cost on the firm’s optimal inventory. We show that when the firm is risk neutral, its optimal inventory is smaller under debt. The effects of debt on optimal inventory decreases with shortage cost and increases with production cost. However, the relationship of debt and optimal inventory is not clear when the firm is loss-averse.

Supply Chain Coordination under Inventory Inaccuracy with RFID Technology

In this paper we consider a two-echelon supply chain under price-dependent demand market and we use RFID to eliminate the effect of inventory inaccuracy. Models are built to evaluate the economic viability and coordination conditions. We analyze two scenarios in which the supply chain is defined, the integrated one and the decentralized one, respectively. For the integrated, we compare the different supply chain revenue with and without RFID technology and then determine the optimal inventory decisions. For the decentralized, we mainly focus on the coordination mechanism by revenue sharing contract under Stackelberg game. By seeking appropriate contract parameters, the supply chain can finally be coordinated while all partners are better off. Furthermore, numerical examples are given to verify our proposition.

Optimal Production Inventory Decision with Learning and Fatigue Behavioral Effect in Labor Intensive Manufacturing

Behavioral economic has received much attention recently. Learning and fatigue are two typical behavioral phenomena in industrial production operation processes. The existence of learning and fatigue result in a dynamic change in productivity. In this paper, a classical economic production quantity model is extended to consider the behavioral economic value of learning and fatigue. Based on a real case study, each production cycle is divided into five phases, i.e, the learning phase, stable phase, fatigue phase, fatigue recovery (rest) phase, and the relearning phase. The new production inventory decision model is incorporated with dynamic productivity and learning-stable-fatigue-recovery effect. Numerical simulation and sensitivity analysis show that appropriate rest alleviates employees fatigue and increases productivity, resulting in a lower average production cost. On the other hand, when the rest time is too high, exceeding a certain value, it leads to the decline of the actual labor productivity, resulting in an increase in the average cost of the system.

Omnichannel retail operations with consumer returns and order cancellation

In this paper, an analytical study is performed on an online retailer’s omnichannel retail operations in which consumers can cancel their order before payment and return the product after payment if the product does not meet their expectation. The online retailer’s optimal pricing and inventory decisions are derived under the online-only strategy and the omnichannel strategy. The results indicate that the retail price decreases when the online retailer opens physical stores and that the omnichannel strategy is not always beneficial to the retailer. Furthermore, we identify the conditions under which the retailer benefits from the omnichannel retailing strategy.

Corrigendum to ``Optimal inventory decisions under vendor managed inventory: Substitution effects and replenishment tactics'' [Applied Mathematical Modelling 43 (2017) 611–629

Corrigendum to ``Optimal inventory decisions under vendor managed inventory: Substitution effects and replenishment tactics'' [Applied Mathematical Modelling 43 (2017) 611–629

Inventory and Credit Decisions Under Inflationary Conditions With Inflation Induced Bad-Debts

This article describes how a credit period, through its influence on demand, becomes a determinant of inventory decisions; therefore, inventory decisions should be determined jointly with credit decisions. Inflation and time value of money affects valuation of investments; hence their effect should not be disregarded in decision-making. Selling on credit exposes a firm to an additional dimension of default risk from customers as a result of inflation. Consequently, this article presents a mathematical model for the joint determination of optimal inventory and credit decisions for a day-terms credit-linked demand by incorporating the effects of inflation and the time value of money. It is assumed that an increase in the rate of inflation leads to an increase in bad-debts. The objective of the model is to maximize the present value of a firm's net profit per unit of time by jointly optimizing the day-terms credit period and order interval. A numerical example, sensitivity analysis, and observations are presented to illustrate the effectiveness of the proposed model.

Pricing and inventory decisions in the food supply chain with production disruption and controllable deterioration

Abstract Food deterioration is becoming a crucial problem for most countries in the world, which may cause both economical losses and environmental damages. In this paper, a Stackelberg gaming model for a three-level food supply chain (consists of one retailer, one vendor and one supplier) with production disruption is established, which aims to study the optimal pricing, inventory and preservation decisions that maximize the individual profit. In the decentralized supply chain, upstream firms act as leaders and downstream firms as followers. Due to the mathematical complexity, an illustrative algorithm is developed to solve the problem. Numerical tests show that retailer's preservation investment not only benefits itself, but also benefits the vendor and the supplier. Comparing the optimal decisions to that in the ‘forward integration’ and ‘backward integration’ model, supply chain members' vertical cooperation helps to enhance the total profit. Meanwhile, the carbon footprint of the food supply chain is also studied. It is found that, vertical cooperation contributes to the reduction of carbon emission. In most situations, ‘forward integration’ outperforms ‘backward integration’ strategy because it incents the retailer to invest more in preservation and reduce food deterioration. Other managerial implications are also shown in the paper.

Coordinated Two-Echelon Inventory Model for Optimal Inventory and Shipment Decisions under Exponential Price Dependent Demand

In this paper, a two echelon inventory system with a single-warehouse and single-retailer is considered. Mathematical model is developed for the retailer, warehouse and for the entire chain by incorporating the ordering/setup costs, carrying costs and transportation costs. Replenishment quantity at the retailer and the number of shipments from the warehouse to the retailer are considered as the decision variables. The objective of the proposed work is to demonstrate the optimality of centralised inventory & shipment decisions and total relevant costs at the respective entities and the chain. Numerical example is considered and the model is solved using the computer program written in MATLAB. From the research findings, it is concluded that the percentage variation in optimality of total transportation cost of the supply chain is in decreasing order with respect to the increased ordering cost of the retailer and set-up cost of the manufacturer. Finally, few managerial implications are derived based on the sensitivity analysis.

Optimal pricing and inventory decisions in a centralised and de-centralised two-echelon inventory system under nonlinear price dependent demand

In this paper, a two-echelon inventory system with a single-manufacturer and single-retailer is considered. Mathematical model for both centralised and decentralised supply chain (SC) is developed by incorporating setup/ordering cost, carrying cost and transportation cost of the respective entities of the chain. Replenishment quantity of the retailer and the number of shipments from manufacturer to retailer are considered as the decision variables in the model. The objective of the proposed model is to demonstrate the optimality of the annual net revenue of the SC and the decision variables under nonlinear price-dependent demand. A numerical example is devised and the model is solved using the computer program written in MATLAB. Also, the sensitivity analysis is carried out to demonstrate the variation in the objective function with model parameters. From the findings of the research, it is concluded that with centralised decisions, percentage increase in the optimality of the annual net revenue of the SC decreases with manufacturer's unit cost whereas increases with retailer's unit cost.

Optimal pricing and inventory decisions in a centralised and de-centralised two-echelon inventory system under nonlinear price dependent demand

Optimal pricing and inventory decisions in a centralised and de-centralised two-echelon inventory system under nonlinear price dependent demand

Pricing and inventory strategies under quick response with strategic and myopic consumers

AbstractWe divide consumers in the selling period into two types according to their purchasing behavior: strategic customers and myopic customers. We address the optimal inventory and pricing decision problem of a retailer considering strategic and myopic consumers with and without a quick response. The results indicate that the retailer should establish a higher price to sell only to myopic customers if there is a sufficient presence of myopic customers in the market, and the retailer should set a lower price to sell to myopic and strategic customers if the number of myopic customers in the market is relatively low. A quick response can decrease the initial ordering quantity and increase the retailer's profit when selling only to myopic customers or selling to both myopic and strategic customers. Moreover, a quick response is beneficial for the retailer to improve the product's retail price if the retailer wishes the two types of customers to purchase the product during the selling period. We also find that the pricing strategy considering strategic and myopic consumers under a quick response will increase profits more than the pricing strategy only considering myopic customers. Finally, numerical experiments are conducted to illustrate and validate the proposed models and provide managerial insights.

Dynamic pricing and inventory control with delivery flexibility

We study a multi-period inventory system with price-sensitive demand and uncertain supplier, focusing on the advantage of delivery flexibility. The optimal pricing and inventory replenishment decisions are explored. We also investigate the changes of marginal profit, optimal order quantities and optimal prices over time horizon with additive demand noise. By comparing our system with delivery flexibility with the other two traditional systems numerically in different scenarios, we show that the delivery flexibility can improve the total profit and mitigate the supply risk.