Single-period two-product inventory model with reorder and substitution

Single-period two-product inventory model with reorder and substitution

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Article ID: iaor20081586
Country: China
Volume: 21
Issue: 1
Start Page Number: 148
End Page Number: 158
Publication Date: Mar 2006
Journal: Chinese Quarterly Journal of Mathematics
Authors: ,
Abstract:

In market, excess demands for many products can be met by reorder even during one period, and retailers usually adopt substitution strategy for more benefit. Under the retailer's substitution strategy and permission of reorder, we develop the profits maximization model for the two-substitutable-product inventory problem with stochastic demands and proportional costs and revenues. We show that the objective function is concave and submodular, and therefore the optimal policy exists. We present the optimal conditions for order quantity and provide some properties of the optimal order quantities. Comparing our model with Netessine and Rudi's, we prove that reorder and adoption of the substitution strategy can raise the general profits and adjust down the general stock level.

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