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Discrete Dynamics in Nature and Society
Volume 2013 (2013), Article ID 984513, 8 pages
http://dx.doi.org/10.1155/2013/984513
Research Article

Combined Sales Effort and Inventory Control under Demand Uncertainty

1School of Management and Engineering, Nanjing University, Nanjing 210093, China
2School of Business, Nanjing University, Nanjing 210093, China
3Hewlett-Packard Laboratories, Hewlett-Packard Co., Palo Alto, CA 94304, USA

Received 9 December 2012; Accepted 19 December 2012

Academic Editor: Xiang Li

Copyright © 2013 Weili Xue et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We study the joint inventory and sales effort management problems of a retailer in a broad context and investigate the optimal policies for a single item, periodic-review system. In each period, the demand is uncertain depending on the sales effort level exerted by the retailer, which incurs an associated cost. The retailer’s objective is to find a joint optimal inventory replenishment and sales effort policy to maximize the discounted profit over a finite horizon. We first consider a basic setting with zero setup cost and no batch ordering, under which the base stock list sales effort policy is optimal. Two extensions are then investigated: (1) the case with nonzero setup cost, under which we show that policy is optimal; and (2) the case with batch ordering, under which we prove the optimality of the policy. Finally, we conduct numerical studies to provide additional managerial insights.