Title: Optimal unit price and credit period for price sensitive demand and random supply

Authors: Nita H. Shah, Ajay S. Gor, Hui-Ming Wee

Addresses: Department of Mathematics, Gujarat University, Ahmedabad, 380 009, Gujarat, India. ' Pramukh Swami Science and H.D. Patel Arts College, SVKM, Kadi, 382 71, Gujarat, India. ' Industrial and Systems Engineering Department, Chung Yuan Christian University, Chungli, 32023, Taiwan, ROC

Abstract: In this study, the authors develop a supplier-retailer optimal integrated strategy where the retailer|s demand is price sensitive and the supplier|s supply is random. It is assumed that the supplier|s supply follows a normal distribution and the supplier may offer credit period to the retailer. The expected profit is maximised with respect to the unit price charged and the credit period offered by the supplier. The computational steps are provided to obtain the supplier|s and the retailer|s decision variables under individual (non-cooperative) as well as joint (cooperative) strategies. The sensitivity analysis of the parameters is carried out using a numerical example. The authors observe that it is beneficial to consider negotiating the optimal pricing and trade credit policies.

Keywords: price sensitive demand; random supply; normal distribution; lot sizing; trade credit; unit price optimisation; credit period optimisation.

DOI: 10.1504/IJADS.2008.022980

International Journal of Applied Decision Sciences, 2008 Vol.1 No.4, pp.455 - 470

Published online: 05 Feb 2009 *

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