A joint decision model of product variety, inventory control and pricing

Abstract

The problem of jointly determining the product variety decision with inventory control decision and pricing decision for different items of a certain brand product is studied in this paper. The market demand of this assortment of products is described as a function of time, price, seasonal factor and random factor, and the total profit of this brand and its service level at the retailer are both given. Based on it, a nonlinear integer programming model to maximize total multi-period profits subject to given stocking space, budgetary and service level constraints is established. The computational results show that by using this joint decision model, the profit of the retailer could be 5 times more than the before. The result shows that as the centralized coordinator, the manufacturer will enhance greatly the whole system's competence of obtaining profit by taking the profit maximization of distribution system as its' strategic goal.