A study on optimal ordering strategy for multi-product under contract constraint and stochastic demand an example on S-Kitchen Life Company

Abstract

In this paper, based on historical data of sales, we proposed a total expected profit model for multi-product, stochastic demand and contract constraints. The constraints include only one time ordering in a year, annual ordering quantity must be greater than the lower bound of contract constraint. This study focuses on durable goods, so there will be no salvage. An optimal analysis technique was applied to search for the optimal ordering quantity for each commodity. Furthermore, a marginal profit analysis method was also used to determine the optimal incremental ordering quantity for each commodity. In addition, the sensitivity analysis was taken to realize the influence of each parameter on optimal ordering quantity and total expected profit. Finally, three conclusions were derived for practical applications and future studies.

Keywords:

• Contract constraint
• stochastic demand
• multi-product
• marginal profit