Model predictive control with dynamic pricing and probability inventory of a single supply chain unit

This paper presents a model predictive control (MPC) method for a single supply chain (SC) unit. In order to make the most profit, the prediction of demand and the policy of inventory are the key factors for an SC unit. The ordering is a manipulate variable for an SC unit, and the pricing is introduced as another manipulate variable in this paper. The supposed price has determinate effect on the demand. The demand then can be regarded as a determinate part and a stochastic part. The inventory is regarded as a probability problem because of the stochastic demand. The two manipulate variables bring different dynamics into the SC unit. An MPC is designed, and the two-time scale characteristic of the two manipulate variables is considered simultaneously for the SC unit. By comparing with MPC without dynamic pricing policy and order-up-to-level policy, we found that the simulation results approve the validity of the MPC with dynamic pricing policy. (C) 2012 Curtin University of Technology and John Wiley & Sons, Ltd.