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Coordination of Pricing and Production Decesions of two Substitutable Products in Multi-periods

Hasani, Zohre | 2018

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52071 (01)
  4. University: Sharif University of Technology
  5. Department: Industrial Engineering
  6. Advisor(s): Akbari Gokar, Mohammad Reza
  7. Abstract:
  8. This research aims to develop and propose mathematical models that can be used to facilitate cross-functional coordination between operations and marketing. The researcher has developed a dynamic model for integrating pricing and production decisions of substitutable products in order to maximize the profit of manufacturer in multi periods. The substitution is price-driven, customer-driven and both one-way and two-way directions are considered in two different models. Demand functions are linear, determined and a function of all prices. Due to the existence of substitution between products, the price elasticity is always positive and this parameter is used as a measure of substitution in this thesis. Competition between manufacturers is ignored and revenue functions are assumed to be differentiable, continues and concave.The problem is modeled as a mixed integer nonlinear program while considering capacity constraints, setup cost, demand seasonality factor, substitution and lost demand parameters. Primary, two-way substitution for two fixed and variable models were developed and then extended to one-way substitution with high to low price flows. Due to existence of convex programming conditions, the models are solved with exact LP/NLP branch and bond method in MATLAB software.Using real world data of a glove manufacturer, we create problem instances for three demand scenarios, two substitutable products and four periods. In general, it was found that Non-substitution would bring the most profit to the producer. In second stage, very high and very low grades of substitution resulted in higher profits than relative substitution. The price difference of the two products with the increase of substitution always decreases and the product with a higher margin will have a larger share in production. We hope that the findings of this thesis will be a step forward in the practical integrated models.


  9. Keywords:
  10. Coordination ; Dynamic Pricing ; Production Planning ; Substitution ; Multi Product Pricing

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