Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/14611
Title: Production planning and pricing policy in a make-to-stock system with uncertain demand subject to machine breakdowns
Authors: Shi, X
Shen, H
Wu, T
Cheng, TCE 
Keywords: Dynamic pricing
Inventory control
Machine breakdown
Production planning
Uncertain demand
Issue Date: 2014
Publisher: Elsevier
Source: European Journal of operational research, 2014, v. 238, no. 1, p. 122-129 How to cite?
Journal: European Journal of Operational Research 
Abstract: We consider a make-to-stock system served by an unreliable machine that produces one type of product, which is sold to customers at one of two possible prices depending on the inventory level at the time when a customer arrives (i.e., the decision point). The system manager must determine the production level and selling price at each decision point. We first show that the optimal production and pricing policy is a threshold control, which is characterized by three threshold parameters under both the long-run discounted profit and long-run average profit criteria. We then establish the structural relationships among the three threshold parameters that production is off when inventory is above the threshold, and that the optimal selling price should be low when inventory is above the threshold under the scenario where the machine is down or up. Finally we provide some numerical examples to illustrate the analytical results and gain additional insights.
URI: http://hdl.handle.net/10397/14611
ISSN: 0377-2217
DOI: 10.1016/j.ejor.2014.03.017
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