Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs

• 成果类型: Article
• 署名作者: Xiao, Guang; Yang, Nan; Zhang, Renyu
• 署名单位: Washington University (WUSTL)
• 刊物名称: M&SOM-MANUFACTURING & SERVICE OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1523-4614
• DOI: 10.1287/msom.2015.0519
• 发表日期: 2015
• 页码: 321-334
• 关键词: joint pricing and inventory management; fluctuating procurement cost; DUAL SOURCING

摘要

We consider a periodic review joint pricing and inventory control model in which a firm faces both stochastic demand and fluctuating procurement costs. To address procurement cost fluctuation, the firm adopts a dual-sourcing strategy, under which it procures from a spot market with immediate delivery and through a forward-buying contract with postponed delivery. Our analysis offers the unique insight that a risk-neutral firm may earn higher expected profit under a more volatile procurement cost process. This is because the firm makes its pricing and sourcing decisions in response to the realized cost in each period. Moreover, we characterize how the firm should dynamically adjust its pricing and sourcing decisions in accordance to cost evolution. For example, if sourcing through the forward-buying contract is less expensive than sourcing directly from the spot market, the optimal safety stock is decreasing in the current spot market purchasing cost. However, the optimal order quantity through the forward-buying contract is, in general, not monotone in the current spot-purchasing cost. Finally, we conduct extensive numerical experiments to show that dynamic pricing and dual sourcing may be either strategic complements or substitutes in the presence of fluctuating procurement costs and uncertain demand. This is because dynamic pricing mitigates demand uncertainty risk and exploits procurement cost fluctuation, whereas dual sourcing may either intensify or dampen demand risk.