On optimal pricing and ordering in supply chain management

This dissertation "On Optimal Pricing and Ordering in Supply Chain Management" is motivated by several operational problems encountered in real life situations in the fields of dynamic pricing and inventory management in Supply Chains. We study new pricing and inventory models, contribute methodologies for solving these problems by providing both optimal and heuristic policies, and report the effectiveness of these methodologies. The results of the thesis contribute solutions to new problems that reflect wide business practice, and improve the efficient management of Supply Chains. The dissertation consists of three essays, in which the first essay studies a dynamic pricing and revenue management model, and the last two essays explore inventory management problems with minimum order quantity (MOQ) and minimum free shipping (MFS) option, respectively.; In the first essay of this thesis, we consider a dynamic pricing and revenue management problem. We study a new dynamic pricing/production model in which a product is produced and sold over an infinite cyclic horizon. That is, the infinite planning horizon consists of repeated sales cycles (that represent days, seasons, etc.). The demand in each period of a cycle has a discrete distribution, which is a function of the selling price and of the time period within the sales cycle. The set of the potential selling prices is finite. Price adjustment is allowed in either direction, i.e., both price markup and markdown are possible. We formulate the problem into a Markovian Decision Processes (MDP) model and we give conditions under which the optimal pricing policy has a simple mark down structure in remaining inventory. Finally, numerical examples are provided where we evaluate the optimal policy under long-run average reward criterion using linear programming.; In the second essay, we consider a retailer who operates a single-product, periodic-review inventory system in an infinite time horizon. Demands for the product are i.i.d. random variables and the ordering cost of the retailer is linear. In each time period, the retailer can order either none or at least as much as a minimum order quantity (MOQ) specified by its supplier. Since the optimal inventory policy of such a system is unknown, we study and propose a heuristic policy of simple structure, namely the (s,t) policy. Properties of the policy and an algorithm to compute its optimal parameters are also provided. Through numerical examples, we demonstrate that the ( s,t) policy has close-to-optimal performance under reasonable conditions, and it constantly and significantly outperforms the (s,S) policies that are currently used in practice.; In the third essay, we study the problem of stochastic inventory systems with free shipping option. In particular, we consider a periodic-review inventory model in which the ordering cost is a linear function of the ordering quantity, and the shipping cost is a fixed constant K, whenever the order size is less than a given quantity00the minimum free shipping (MFS) quantity, and it is zero whenever the order size is equal to or greater than the MFS quantity. Demands in different time periods are independent random variables. We present the optimal inventory control policy and characterize its structural properties for the model in single period. For the multiple-period case, we propose a heuristic policy that has a simple structure. In addition, we conduct numerical studies to gauge the effectiveness of the heuristic policy and provide managerial insights.; Finally, several extensions of the research are discussed.