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Inventory Decisions With Decreasing Purchasing Costs

Author

Listed:
  • XIANGPEI HU

    (School of Management, Dalian University of Technology, Dalian, P. R. China)

  • HUIMIN WANG

    (The Business School, Hohai University, Nanjing, P. R. China)

  • YUNZENG WANG

    (The School of Business Administration, University of California, Riverside, CA 92521, USA)

Abstract

Costs of many items drop systematically throughout their life-cycles, due to advances in technology and competition. Motivated by the management of service parts for some high-tech products, this paper studies inventory decisions for such items. In a periodic review setting with stochastic demand, we model the purchasing costs of successive periods as a stochastic and decreasing sequence. Unit selling price of the item is determined as some mark-up of the purchasing cost and, hence, will change over time as well. We consider two specific mark-up models: (1) purchasing cost plus constant-dollar-amount mark-up, and (2) purchasing cost plus constant-percentage mark-up. To maximize the total discounted expected profit, we derive conditions under which myopic policies are optimal for the systems.

Suggested Citation

  • Xiangpei Hu & Huimin Wang & Yunzeng Wang, 2012. "Inventory Decisions With Decreasing Purchasing Costs," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 29(01), pages 1-14.
    • Handle: RePEc:wsi:apjorx:v:29:y:2012:i:01:n:s0217595912400027
    DOI: 10.1142/S0217595912400027
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    Cited by:

    1. Shih-Hsien Tseng & Jia-Chen Yu, 2019. "Data-Driven Iron and Steel Inventory Control Policies," Mathematics, MDPI, vol. 7(8), pages 1-15, August.
    2. Udayan Chanda & Alok Kumar, 2019. "Optimization of EOQ Model for New Products Under Multi-Stage Adoption Process," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1-25, April.

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