An effective approximation algorithm for joint lot-sizing and pricing problem

Emphasis on effective demand management is becoming increasingly recognized as an important factor in operations performance as well as the supply management. One of the known leverages to demand management is pricing. In joint pricing and production planning problem, manufacturer or supplier faces a price-sensitive demand and it should maximize its profit by making decision on the production policy among the finite time horizon while predicting the demand via determination of the prices of the products it sells. In this paper, a single-item joint pricing and production planning with concave revenue function has been discussed. By a piecewise linear approximation and reduction of the resulting problem to a bilinear one, an effective heuristic procedure has been proposed to solve it optimally. The efficiency of the procedure has been shown by numerical experiments.