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Optimal Transition Ordering Strategies with Announced Price Increases

Optimal Transition Ordering Strategies with Announced Price Increases Should an organization modify its ordering policies when a supplier announces an impending price increase for an item? Announced price increases are a common economic phenomenon. This article develops the optimal stock replenishment strategies in response to a price change. It is shown that the optimal response depends on the number of order cycles before the price change becomes effective. The potential cost savings can be substantial. The familiar model for determining the optimal stock replenishment strategy for an impending price increase assumes a buyer has limited replenishment opportunities before the increase. This paper extends the model to include multiple replenishment opportunities. Optimal replenishment strategies are developed for any length of notification period and cost savings are identified. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The International Journal of Logistics Management Emerald Publishing

Optimal Transition Ordering Strategies with Announced Price Increases

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Publisher
Emerald Publishing
Copyright
Copyright © 1991 MCB UP Ltd. All rights reserved.
ISSN
0957-4093
DOI
10.1108/09574099110804652
Publisher site
See Article on Publisher Site

Abstract

Should an organization modify its ordering policies when a supplier announces an impending price increase for an item? Announced price increases are a common economic phenomenon. This article develops the optimal stock replenishment strategies in response to a price change. It is shown that the optimal response depends on the number of order cycles before the price change becomes effective. The potential cost savings can be substantial. The familiar model for determining the optimal stock replenishment strategy for an impending price increase assumes a buyer has limited replenishment opportunities before the increase. This paper extends the model to include multiple replenishment opportunities. Optimal replenishment strategies are developed for any length of notification period and cost savings are identified.

Journal

The International Journal of Logistics Management – Emerald Publishing

Published: Jan 1, 1991

Keywords: Orders and ordering; Prices; Stock control; Cost reduction

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