Exploiting Lead Time Elasticity to Increase Profit: An Inventory Model with an Option of Deferred Delivery

摘要

We consider a dynamic inventory model with stochastic demand where customers are offered a choice between drawing a full-price item immediately from inventory or a discounted-price item with a delay in delivery, thereby allowing the firm to exploit the "lead time elasticity" of customer demand. Our foundational result is to demonstrate that for a given price discount, the optimal stocking policy follows that of a generalized newsvendor model. Thereafter, we present closed-form solutions for the profit-maximizing value of the discount for assumed elasticity functions. Empirical results indicate that for products with high demand variance and/or high holding costs, our model results in substantial improvement in profits.