Optimal production and selling policies with fixed-price contracts and contingent-price offers
This paper investigates optimal production and selling decisions for a single supplier with two types of customers. Specifically, risk-averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk-prone buyers prefer to secure remaining stocks and pay lower contingent prices. This study formulized this problem with a dynamic programming model and analyzed it further using successive approximations. Theoretical results indicate that no controls are needed for fixed-price orders. However, thresholds exist for manufacturing and contingent-price ordering policies. These two types of threshold planes increased with the addition of waiting customers. Furthermore, a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods.
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Volume (Year): 137 (2012)
Issue (Month): 1 ()
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