Best pricing and optimal policy for an inventory system under time-and-price-dependent demand and backordering.

Abstract

In this paper, we study an inventory system for products where demand depends on time and price. Shortages are allowed and are fully backordered. We suppose that the demand rate is the product of a power time pattern and a three-parametric exponential price function. The objective is to determine the economic lot size, the optimal shortage level and the best selling price to maximize the total profit per unit time. We present an efficient procedure to determine the optimal solution of the inventory problem for all possible scenarios. This procedure is illustrated with several numerical examples. A sensitivity analysis of the optimal inventory policy with respect to the parameters of the demand rate function is also given. Finally, the main contributions of this paper are highlighted and future research directions are introduced.