Please use this identifier to cite or link to this item: https://doi.org/10.1109/TAC.2005.863484
Title: Joint management of finished goods inventory and demand process for a make-to-stock product: A computational approach
Authors: Chen, L.
Feng, Y.
Ou, J. 
Keywords: Demand process management
Dynamic pricing
Finished goods inventory management
Make-to-match production
Poisson demand
Production control
Issue Date: 2006
Source: Chen, L., Feng, Y., Ou, J. (2006). Joint management of finished goods inventory and demand process for a make-to-stock product: A computational approach. IEEE Transactions on Automatic Control 51 (2) : 258-273. ScholarBank@NUS Repository. https://doi.org/10.1109/TAC.2005.863484
Abstract: In this paper, we consider the joint management of finished goods inventory and demand for a product in a make-to-stock production system. The production process is random with controllable mean rate, and the demand process is stochastic with changeable mean rate dependent on the sale price being high or low. The management issue is how to dynamically adjust the production rate and the sale price to maximize the long run total discounted profit. We show that: 1) the optimal management of the finished goods inventory follows a base stock policy: when the inventory is above certain base stock level, the production is halted; otherwise the maximum production rate is deployed to raise the inventory to the base stock level; and 2) the optimal management of the demand process follows a price switch threshold policy: when the inventory is above the threshold, the low sale price is chosen to sell the product; and below it the high price is chosen to reduce the demand. We provide an algorithm to compute the base stock level and price switch threshold. Extension to multiple price choices is given with proofs highlighted. © 2006 IEEE.
Source Title: IEEE Transactions on Automatic Control
URI: http://scholarbank.nus.edu.sg/handle/10635/43965
ISSN: 00189286
DOI: 10.1109/TAC.2005.863484
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