Acquisition management under fluctuating raw material prices

Document Type

Article

Publication Date

3-1-2009

Abstract

We study a continuous-review acquisition problem, in which the raw material price follows a discrete-state Markov process and demand is compound Poisson. We show that one optimal policy is of the order-up-to type. Under our mean reversion and time continuity conditions, we further show that the order-up-to levels are decreasing at the current price level. At the same time, our computational study verifies that both conditions are indispensable for the monotonicity result. The study also hints at the connection between discrete- and con-tinuous-state price processes. © 2009 Production and Operations Management Society.

Identifier

67549146637 (Scopus)

Publication Title

Production and Operations Management

External Full Text Location

https://doi.org/10.1111/j.1937-5956.2009.01010.x

ISSN

10591478

First Page

212

Last Page

225

Issue

2

Volume

18

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