Research On Substitutable Products' Inventory Model Considering Risk Preferences

With the rapid development of social productivity and the improvement of people's living standard,the speed of product development is accelerating and the product life cycle is unceasingly shortening,the demands of consumers is becoming more and more diversified and personalized,the products on the market is becoming more and more rich,and the potential substitutability between products is also growing,this puts forward new requirements to the enterprise inventory management.In inventory management practice,however,in the face of uncertain market demand environment,in order to minimize the shortage and excess risk of product inventory and the corresponding customer lost risk and cash flow risk,in the actual decision-making process,decision makers are usually conservative or aggressive,which makes the substitutable products' inventory management problem becomes more complicated.So far,research on substitutable products' inventory management problem are mostly about pure stock-out substitution under the risk neutral hypothesis.Taking into account product competition and substitution with decision makers' risk preference is not much.Firstly,the study defines the form and correlation of the product substitution,and analyzes the products' demand relationship under competition and substitution at the same time.Then,the paper discusses the limited rational behavior deviation and risk aversion preference relations,describes the decision maker's risk aversion preference by the shortage aversion factor and excess aversion factor,and analyzes the influence of these two factors on inventory decision-making behaviors.Secondly,on the previous analysis,based on the substitutable products may be attributed to different inventory decision makers,respectively,in this paper,centralized decision ordering model and decentralized decision order model are established.The centralized decision ordering model focuses on one retailer who sells two substitutable products,and the retailer aims to maximize the expected profit by deciding the optimal order quantities of the two products.The decentralized decision ordering model focuses on two retailers who sells two different substitutable products respectively,and the relationship between the two retailers is a competitive game.Under the different decision models,the paper proves the existence of the optimal order quantity,also analyzes and compares the influence of retailers' different risk preference,the degree of preference,the demand transfer rate,the products' price,cost and salvage value on the retailer's ordering behaviors.Finally,considering that in some cases enterprises can adjust their supply and demand to a certain extent through price adjustment,the paper extends the research on the replacement price discount of substitutable products' inventory problem,explores the influence of different price discount on the transferring demand and the ordering quantity,further enrich the study of substitutable products' inventory decision problem.