Inventory Management under Fluctuating Raw Material Prices

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This grant provides funding for the analysis of theoretical models and development of numerical tools for the joint dynamic acquisition-production-pricing control problem. Its goal is to produce general guidelines and managerial insights that will assist firms that battle fluctuating raw material prices in making prudent operational decisions. Progressively more sophisticated models will be studied. Starting with a base model where states of the raw material prices are discrete, the project will move on to more complicated settings involving continuous raw material price states, simultaneous acquisition-production considerations, simultaneous acquisition-pricing considerations, and other extensions. For each of the models, the optimal operations policies for the firm will be sought after. Also pursued will be special problem conditions that would lead to desired properties of the policies. Computational studies will be performed to establish, as definitive as possible, links between policy characteristics and model parameters. If successful, results of the research will lead to better understanding of the joint dynamic control problem and advancement of related theoretical fields. They will also offer practitioners a set of technical guidelines, and therefore enhance their systematic understanding of the joint management of acquisition, production, and pricing in the face of varying raw material prices. Results of the research will be disseminated through refereed professional journals and conference presentations, and the computer programs developed will be made available to the public. Furthermore, the project will establish mutually-beneficial relationships with manufacturing firms that frequently face the joint acquisition-production-pricing decision puzzle. Finally, the research will engage the participation of Ph.D. and MS students and help them prepare for their academic and industry careers.