Joint determination of inventory replenishment and sales effort with uncertain market responses

Abstract

An optimal joint operational and marketing decision is crucial for robust supply chain management. This paper addresses concurrent determination of inventory replenishment and sales effort decisions such as price, incentives to salesforce, and short-term promotions, or a combination of them. Market responses to sales efforts are typically highly uncertain, and demand in each period has its distribution dependent on the selected sales effort. In each period a replenishment order may be issued, which incurs both fixed and variable ordering costs, and at the same time the sales effort is also determined, the execution of which may incur costs. For such a model, the previously developed methods which are used for the joint inventory-pricing models become inadequate. A computational procedure for obtaining an optimal joint policy is addressed, and the conditions for the optimality of that policy are identified.Sales effort Market response Uncertainty Inventory control