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Modelling lead time effects on joint inventory and price optimisation

Author

Listed:
  • Leopoldo Eduardo Cardenas-Barron
  • Neale R. Smith
  • Jose Luis Martinez-Flores
  • Marisela Rodriguez Salvador

Abstract

In this paper, we study the effect of lead time from the buyer's point of view on joint price and inventory optimisation problems in a continuous time setting using an average profit maximising model that extends the familiar EOQ model. The behaviour of the model is studied using numerical experiments that show that as lead time increases, the optimal price increases and the optimal profit and lot size decrease. Additional numerical experiments are performed that show how the purchase cost must be decreased to allow a firm to maintain constant pricing and profit when lead times increase. The work has important implications for firms that implement global sourcing, both in terms of pricing and purchase cost negotiation.

Suggested Citation

  • Leopoldo Eduardo Cardenas-Barron & Neale R. Smith & Jose Luis Martinez-Flores & Marisela Rodriguez Salvador, 2010. "Modelling lead time effects on joint inventory and price optimisation," International Journal of Logistics Economics and Globalisation, Inderscience Enterprises Ltd, vol. 2(3), pages 270-291.
    • Handle: RePEc:ids:injleg:v:2:y:2010:i:3:p:270-291
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    Cited by:

    1. Sujit Kumar De & Shib Sankar Sana, 2018. "The (p, q, r, l) model for stochastic demand under Intuitionistic fuzzy aggregation with Bonferroni mean," Journal of Intelligent Manufacturing, Springer, vol. 29(8), pages 1753-1771, December.

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