Optimal pricing, lot‐sizing and marketing planning in a capacitated and imperfect production system

Optimal pricing, lot‐sizing and marketing planning in a capacitated and imperfect production system

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Article ID: iaor20121212
Volume: 62
Issue: 1
Start Page Number: 349
End Page Number: 358
Publication Date: Feb 2012
Journal: Computers & Industrial Engineering
Authors: , ,
Keywords: optimization, programming: multiple criteria, programming: geometric, programming: nonlinear
Abstract:

In the classical economic production quantity (EPQ) problem demand is considered to be known in advance. However, in the real‐world, demand of a product is a function of factors such as product’s price, its quality, and marketing expenditures for promoting the product. Quality level of the product and specifications of the adopted manufacturing process also affect the unit product’s cost. Therefore, in this paper we consider a profit maximizing firm who wants to jointly determine the optimal lot‐sizing, pricing, and marketing decisions along with manufacturing requirements in terms of flexibility and reliability of the process. Geometric programming (GP) technique is proposed to address the resulting nonlinear optimization problem. Using recent advances in optimization techniques we are able to optimally solve the developed, highly nonlinear, mathematical model. Finally, using numerical examples, we illustrate the solution approach and analyze the solution under different conditions.

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