Pricing for production and delivery flexibility in single-item lot-sizing

Adjusting prices to influence demand so as to increase revenue has become common practice. We investigate adjusting prices to influence demand so as to reduce cost. More specifically, we consider offering price discounts in return for production and delivery flexibility. We do so in the context of the single-item, single-level uncapacitated lot-sizing problem. We show that even though the resulting optimization problem has a nonlinear objective function it can still be solved in polynomial time. Furthermore, we report results of a computational study analyzing the benefits of offering price discounts in return for production and delivery flexibility in various settings. (c) 2012 Elsevier Ltd. All rights reserved.