Optimal time-based consolidation policy with price sensitive demand

Ki Sung Hong, Chulung Lee

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

We consider a single-item inventory system where shipments are consolidated to reduce the transportation cost using a time-based consolidation policy and develop a mathematical model to obtain the optimal price, replenishment quantity and dispatch cycle to maximize the total profit. The long-run average profit is computed and the optimality properties are obtained. Using the optimality properties, we develop an efficient algorithm to obtain the optimal values of price, replenishment quantity and dispatch cycle for the proposed policy. We then extend our results to consider quantity discount of unit dispatch cost. In order to compare the performances of the proposed policy with the optimal quantity-based policy, extensive numerical experiments are conducted, and the total profit and the customer waiting time that represents quality of service are compared. We also propose the quantity-time-based policy, which is a hybrid approach, and the numerical results show that additional profit can be obtained without sacrificing quality of service.

Original languageEnglish
Pages (from-to)275-284
Number of pages10
JournalInternational Journal of Production Economics
Volume143
Issue number2
DOIs
Publication statusPublished - 2013 Jun

Keywords

  • Linear demand function
  • Pricing
  • Shipment consolidation
  • Time-based consolidation policy

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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