Title: Inventory policies for products with bi-level demand: optimal and heuristic algorithms

Authors: Parag Dhumal; P.S. Sundararaghavan; Udayan Nandkeolyar

Addresses: Department of Business, University of Wisconsin-Parkside, 900 Wood Road, Kenosha, WI 53141, USA. ' Information, Operations and Technology Management Department, The College of Business and Innovation, The University of Toledo, Toledo, Ohio – 43606, USA. ' Information, Operations and Technology Management Department, The College of Business and Innovation, The University of Toledo, Toledo, Ohio – 43606, USA

Abstract: Marketing literature has long recognised price elasticity can increase the short term mean demand by as much as 400%. In this paper, we capture this behaviour of demand using a bi-level demand function and address the related inventory management problem. The seemingly simple problem turns out to be difficult to solve optimally. We present optimal and heuristic approaches. We also reformulate this problem by making price and duration as decision variables under profit maximisation environment and present calculus-based solutions.

Keywords: inventory control; heuristics; economic order quantity; EOQ; ordering policy; bi-level demand; price elasticity; demand behaviour; inventory management.

DOI: 10.1504/IJIR.2011.045386

International Journal of Inventory Research, 2011 Vol.1 No.3/4, pp.288 - 321

Published online: 07 Mar 2015 *

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