A joint economic lot size model under continuously increasing purchase prices of raw materials
Mar 1, 2016
Publisher: Institute of Production and Supply Chain Management, Technische Uni-versität Darmstadt
Industry: Supply Chain

A common assumption of existing Joint Economic Lot Size models is that purchase prices for raw materials and components are constant over time. However, this is not always the case in practice. Instead of assuming a constant purchase price, we have to start from the premise that purchase prices may increase or decrease over time. While continuously decreasing purchase prices have quite frequently been studied in the past, the effect of continuously increasing purchase prices on the coordination of inventory replenishment decisions has remained largely unexplored. For this reason, this paper investigates the effect of continuously increas-ing purchase prices of raw materials in a Joint Economic Lot Size problem. After formulating the model, an algorithm is developed to determine an optimal production and inventory poli-cy that minimizes the total costs of the supply chain. Computational experiments carried out examine the effects of the price increase on the optimal inventory replenishment policy.

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