Application of a multi period multi retailer price decision and inventory allocation model

Effective dynamic pricing strategies and optimal inventory allocation have emerged as crucial drivers for operational success for vendor-retailer systems under supply chain constraints and economic uncertainties. Joint problems optimizing profit have been extensively studied in the literature while a gap remains for applications within a unified model with retailer specific warehouse to retailer lead times, lost sales costs as a cost component and inventory capacity levels. In this thesis, an existing multi period multi retailer profit optimization model is extended with these considerations. Real FMCG company data are calibrated to perform an industry application on the extended model leveraging their distributor sales channel's relevant practices and operational advantages for dynamic strategies. Empirical analysis using company data reveals that retailer capacity constraints act as a limiting factor under increasing transportation costs, with profit impacts ranging up to 1.01%, depending on supply chain cost ratios. The impact of fully dynamic pricing strategy on total profit is found to be up to 1.61%. Experimental results using synthetic data indicate that increased unit lost sales costs and longer lead times correlate to broader range of prices and elevated prices during initial frozen periods. Total profit is seen to be decreased under higher unit lost sales costs. Results indicate that straightforward comparison of total profit among different lead times is not straightforward due to complex trade-offs between model parameters. Nevertheless, insufficient initial retailer inventories result in lower total profit for longer lead times as longer lead times make it difficult for the model to compensate lost sales. Longer lead times require earlier allocation decisions, potentially impacting profitability in dynamic business environments. Model extensions significantly influence pricing and allocation decisions during frozen periods, suggesting that flexible systems can effectively compensate total profit through short-term adjustments rather than wholesale strategy revisions.