When a supplier announces impending price raise at a certain time in the future, it is important
for a retailer to decide whether or not to purchase additional stock for taking advantage of the lower
(present) price. This study explores the possible effects of price increase on the retailer's
replenishment policy under limited special order quantity and with a constant rate of decay of goods.
Two situations discussed in this study are: (1) the special order time occurs at the retailer's
replenishment time, and (2) the special order time occurs during the retailer's sale period. By
analyzing total relevant inventory cost saving between special and regular orders during a special
order cycle time, the optimal special order policy for each situation can be determined. Several
numerical examples are given to illustrate the theoretical results. Additionally, sensitivity analysis of
the optimal solution with respect to major parameters is presented.
