Title: The effect of order incentives in a multi-product dynamic inventory model

Authors: Bin Zhou; Hua Zhong; John Wang

Addresses: Marilyn Davis College of Business, University of Houston Downtown, Houston, USA ' School of Economics and Business, SUNY College at Oneonta, Oneonta, USA ' Feliciano School of Business, Montclair State University, Montclair, USA

Abstract: This paper addresses the challenges in a multi-product inventory system with uncertain demands. As an incentive, free shipping is used by the supplier to stimulate large orders from customer, who reviews and restocks inventory periodically. The model is first established through stochastic dynamic programming and the characteristics of the optimal policies are analysed. As the optimal control policies are found very complex, accurate lower bound approximations and effective heuristic policies are proposed and discussed. Finally, performance of the lower bounds and heuristics is evaluated through extensive numerical studies which also evaluate the effects of key system parameters including service levels and varied costs.

Keywords: production and inventory management; multiple products; stochastic model; heuristics.

DOI: 10.1504/IJOR.2021.117685

International Journal of Operational Research, 2021 Vol.42 No.1, pp.73 - 90

Received: 22 Feb 2019
Accepted: 25 Apr 2019
Published online: 21 Sep 2021 *

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