Study On Dynamic Pricing Based On Inventory Management In Supply Chain

Continued deflationary trends in many markets around the world are creating greater pressure for cost reduction in order that margins can be maintained. Customers and consumers are increasingly value driven and consequently less brand or supplier loyal. In this challenging world, there is a growing recognition that creative pricing strategies combined with effective supply chain management provide opportunities for significant cost reduction and increased profits. As one of the pricing techniques, dynamic pricing offers significant opportunities to increase profits and improve supply chain performance by better matching supply and demand.Firstly, this thesis is based on model that assumes discrete price changes. The model considers a problem of dynamically pricing by a dominant distributor who sells a single product over a finite planning horizon and many retailers in a supply chain. The demand rate depends solely on the current price and the price response function is linear where price-elasticity of demand is non-decreasing in price. The retailers are willing to buy as soon as the price is below their reservation price. When the price is above reservation price, the demand rate will drop to zero. We create an inventory model and determine the economic order quantity, the optimal prices and the associated time of price changes that maximize the distributor's the average profit.Secondly, it extends the model to consider continuous price changes and the selling periods uncertainly. The problem is solved by using optimal control theory and the solution of two variable extreme value problems.At last, it proposes the development perspective of dynamic pricing of inventory management in supply chain.