An optimal stochastic production planning problem with randomly fluctuating dem and
SIAM Journal on Control and Optimization
Optimality of zero-inventory policies for unreliable manufacturing systems
Operations Research
Critical number policies for inventory models with periodic data
Management Science
Turnpike sets and their analysis in stochastic production planning problems
Mathematics of Operations Research
Optimal and Hierarchical Controls in Dynamic Stochastic Manufacturing Systems: A Survey
Manufacturing & Service Operations Management
Short-Term Variations and Long-Term Dynamics in Commodity Prices
Management Science
Periodic review inventory control with fluctuating purchasing costs
Operations Research Letters
Multiechelon Procurement and Distribution Policies for Traded Commodities
Management Science
Integrated Optimization of Procurement, Processing, and Trade of Commodities
Operations Research
Analytical study on multi-product production planning with outsourcing
Computers and Operations Research
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The relationship between commodity inventory and short-term price variations has received considerable attention, but the understanding has been limited to single-stage cross-sectional relation. In this paper, we aim to deepen our understanding of the inventory--price relationship in two dimensions: across time and across production stages. We first examine an individual firm controlling production and two stages of inventory under uncertain input and output prices and operating costs. We next establish and characterize the rational expectations equilibrium for an economy in which competitive production firms link a raw material market and a finished goods market, with uncertain and price-sensitive supply and demand. We characterize the dynamics of inventory, market price, and gross margin based on theoretical analysis, simulation, and empirical evidence from the petroleum industry. We find that inventory fluctuations lag behind price variations, and the length of the lags depend on how far the inventory is from the source of the supply or demand shocks. We also find that shocks are both dampened and delayed when propagating through the production stages, and that shocks have a prolonged effect on inventories and prices at both stages.