Coordinating Inventory Control and Pricing Strategies

Massachusetts Institute Of Technology, Cambridge MA

Investigators

Abstract

This grant provides funding for the analytical analysis of models that coordinate pricing, production and inventory decisions in an attempt to develop optimal or near optimal algorithms for them. Interestingly, concepts such as convexity or k-convexity, that have been proven effective for classical inventory models, do not directly apply for models with general, price dependent, stochastic demand processes. Thus, to analyze models that incorporate pricing decisions, the concept of symmetric k-convex functions has been developed and applied to a variety of pricing problems including finite and infinite horizon single product models. This concept settled a long-standing conjecture and characterized the structure of the optimal policy for each of these problems. This research will continue with the analysis, development and implementation of algorithms for different variants of models that integrate pricing, production and inventory decisions. The focus is on developing theoretical and practical methods that utilize the available information to improve supply chain efficiencies and ultimately the company bottom line. Specifically, the research will focus on (i) applying the notion of symmetric k-convex functions to a variety of pricing models including models with multiple classes of customers differentiated by their sensitivity to price and lead-time, as well as models with discretionary sales; (ii) develop computational methods and test their effectiveness using data received from industrial partners; and (iii) apply the notion of symmetric k-convexity to other operational management problems.