Dynamic Inventory Control Models

Abstract

It is usual for a seller to offer discounted prices to buyers that procure goods from them in large volumes. A buyer wanting to take advantage of the discount being offered will have to balance the reduced purchase cost with the increase in carrying cost. In this chapter, we discuss continuous review (EOQ) models with quantity discounts, also known as price-break models. We start our discussions describing the concept of discount with a single price-break model. We then extend our discussions to models with multiple price-breaks. Two types of multiple price-break models have been discussed in this chapter:

• All-units discount model, where the seller offers a uniform discount on all the units purchased. Instantaneous and gradual supply models are both discussed.

• Incremental discount model, where additional units purchased are offered a higher discount.

Toward the end of this chapter, we also discuss another type of discount model – special discount model, also known as a one-off discount or promotional discount model.