Article ID: | iaor20042631 |
Country: | Netherlands |
Volume: | 148 |
Issue: | 2 |
Start Page Number: | 363 |
End Page Number: | 373 |
Publication Date: | Jul 2003 |
Journal: | European Journal of Operational Research |
Authors: | Hackman Steven T., Thomas Douglas J. |
Keywords: | inventory |
We analyze a supply chain environment in which a distributor facing price-sensitive demand has the opportunity to contractually commit to a delivery quantity at regular intervals over a finite horizon in exchange for a per-unit cost reduction for units acquired via committed delivery. Supplemental orders needed to meet demand are purchased at an additional unit cost. For normally distributed demand, we use a simulation-based approximation to develop models yielding closed-form solutions for the optimal quantity and resell price for the distributor. Inventory, ordering and pricing implications for this “committed delivery strategy” are investigated.