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Dynamic coordination of production planning and sales admission control in the presence of a spot market

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  • Youyi Feng
  • Zhan Pang

Abstract

We consider the decision‐making problem of dynamically scheduling the production of a single make‐to stock (MTS) product in connection with the product's concurrent sales in a spot market and a long‐term supply channel. The spot market is run by a business to business (B2B) online exchange, whereas the long‐term channel is established by a structured contract. The product's price in the spot market is exogenous, evolves as a continuous time Markov chain, and affects demand, which arrives sequentially as a Markov‐modulated Poisson process (MMPP). The manufacturer is obliged to fulfill demand in the long‐term channel, but is able to rein in sales in the spot market. This is a significant strategic decision for a manufacturer in entering a favorable contract. The profitability of the contract must be evaluated by optimal performance. The current problem, therefore, arises as a prerequisite to exploring contracting strategies. We reveal that the optimal strategy of coordinating production and sales is structured by the spot price dependent on the base stock and sell‐down thresholds. Moreover, we can exploit the structural properties of the optimal strategy to conceive an efficient algorithm. © 2010 Wiley Periodicals, Inc. Naval Research Logistics, 2010

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  • Youyi Feng & Zhan Pang, 2010. "Dynamic coordination of production planning and sales admission control in the presence of a spot market," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(4), pages 309-329, June.
    • Handle: RePEc:wly:navres:v:57:y:2010:i:4:p:309-329
    DOI: 10.1002/nav.20398
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    Cited by:

    1. A. Baykal Hafızoğlu & Esma S. Gel & Pınar Keskinocak, 2016. "Price and Lead Time Quotation for Contract and Spot Customers," Operations Research, INFORMS, vol. 64(2), pages 406-415, April.
    2. Jianjun Xu & Mustafa Cagri Gürbüz & Youyi Feng & Shaoxiang Chen, 2020. "Optimal Spot Trading Integrated with Quantity Flexibility Contracts," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1532-1549, June.
    3. Guang Xiao & Nan Yang & Renyu Zhang, 2015. "Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 321-334, July.

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