Abstract
This paper investigates optimal production and selling decisions for a single supplier with two types of customers. Specifically, risk-averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk-prone buyers prefer to secure remaining stocks and pay lower contingent prices. This study formulized this problem with a dynamic programming model and analyzed it further using successive approximations. Theoretical results indicate that no controls are needed for fixed-price orders. However, thresholds exist for manufacturing and contingent-price ordering policies. These two types of threshold planes increased with the addition of waiting customers. Furthermore, a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods.
Original language | English |
---|---|
Pages (from-to) | 94-101 |
Number of pages | 8 |
Journal | International Journal of Production Economics |
Volume | 137 |
Issue number | 1 |
DOIs | |
State | Published - 1 May 2012 |
Keywords
- Contingent prices
- Dynamic programming
- Manufacturing and selling decisions
- Optimal policy
- Sensitivity analysis