Replenishment and Stocking Policies for Inventory Systems with Random Deal Offerings

Abstract

This paper considers the replenishment and stocking decision for inventory systems in which price discounts, referred to as deals, are offered by the supplier (or the market place) at random points in time. Assuming that the demand is constant over time, the times between deal offerings are exponentially distributed and that the order leadtimes are negligible, we derive expressions for evaluating the operating characteristics of the model. Moreover, we derive expressions for determining the optimal policy parameters for such systems and present results on the behavior of the optimal policy parameters. Our results are easy to implement, intuitive and provide managerial insights and a better understanding on the effect of random deal offerings on replenishment and stocking decisions. In addition, we suggest a back of envelope heuristic solution for deriving the policy parameters.