Optimal pricing and lot-sizing decisions under Weibull distribution deterioration and trade credit policy

Abstract

In this paper, we consider the problem of simultaneous determination of retail price and lot-size (RPLS) under the assumption that the supplier offers a fixed credit period to the retailer. It is assumed that the item in stock deteriorates over time at a rate that follows a two-parameter Weibull distribution and that the price-dependent demand is represented by a constant-price-elasticity function of retail price. The RPLS decision model is developed and solved analytically. Results are illustrated with the help of a base example. Computational results show that the supplier earns more profits when the credit period is greater than the replenishment cycle length. Sensitivity analysis of the solution to changes in the value of input parameters of the base example is also discussed.

Keywords

• retail price
• lot-size
• inventory management