Capacitated procurement planning with price-sensitive demand and general concave-revenue functions

This paper develops effective solution methods for discrete-time, finite-horizon procurement planning problems with economies of scale in procurement, price-sensitive demand, and time-invariant procurement capacities. Our models consider general concave-revenue functions in each time period, and seek to maximize total revenue less procurement and inventory holding costs. We consider the case in which prices may vary dynamically, as well the important practical case in which a constant price is required during the planning horizon. Under mild conditions on the revenue function properties, we provide polynomial-time solution methods for this problem class. The structural properties of optimal solutions that lead to efficient solution methods also serve to sharpen intuition regarding optimal demand management strategies in complex planning situations. (C) 2007 Elsevier B.V. All rights reserved.