E3S Web of Conferences 372, 02004 (2023) https://doi.org/10.

1051/e3sconf/202337202004
ICUEMS2023

Pricing and inventory Decision Optimization under subscription

mode in Supply chain management
Kefan Hu *
School of Economics and Management, Beijing Jiaotong University, China

Abstract. This paper investigates the current situation of subscription mode, applies it to the joint
management of pricing and inventory in supply chain management, builds the product pricing and inventory
model under subscription mode, and verifies the model derivation and results based on the joint decision
model of pricing and inventory, and simulates the decision-making process of the model by computer
programming. By comparing the difference between the theoretical model of joint decision of pricing and
inventory under uncertain supply and demand conditions and the model of joint decision of pricing and
inventory under subscription mode, analyzing the influencing factors and exploring the optimization method
of product pricing and inventory model algorithm under subscription mode. The results show that: (1) in
supply chain management, it is necessary to solve the problem of supply and demand balance through
effective joint decision of pricing and inventory, and effectively improve the competitiveness of logistics
enterprises.(2) The introduction of subscription mode in the joint management of pricing and inventory can
reduce the uncertainty of both sides, so as to better solve the problem of inventory replenishment strategy and
pricing decision under the condition of supply and demand uncertainty than the traditional decision-making
model, so as to achieve the coordination of supply chain under the uncertain environment.

1 Introduction
1.2 Literature Review
1.1 Research Background
Many domestic scholars have carried out researches on
In today's world, the rapid development of economic the application of subscription mode. Shi Ruisheng (2013)
globalization has brought new challenges to enterprises: believes that it is very important to apply the publishing
(1) the increasing uncertainty in all aspects of the market; and subscription technology to the system architecture
② the advance of the purchase of products is gradually design, and has conducted a series of in-depth studies on
lengthened;③ There are more and more factors affecting this issue, and found a series of key technical problems:
data intelligent distribution and routing technical
the cost and pricing strategy of different kinds of products;
problems in a large-scale distributed environment[3]; Liu
④ More and more factors affect inventory control Xujun, Ma Yue and Yu Dong (2010) constructed an
decisions; ⑤ the overall supply chain management of abstract model based on the publish-subscribe model[4]. In
enterprises is becoming more and more difficult. the process of building the model, the program language
Enterprises are increasingly concerned about how to of the model detection tool was used to convert the
ensure the supply of products faster and better meet the established abstract model into the corresponding PRISM
demand for products, especially in the service and program. Finally, the queue theory was applied and the
manufacturing industries. Many enterprises have adopted detection tool was used to investigate the performance of
new supply chain management strategies, such as rapid the publish-subscribe communication model. And
response strategy, differential delay strategy, etc., in order analyzed.
to solve the balance need in the supply chain -- the At present, there are also some researches on the joint
problem of product supply and demand balance[1,2]. decision of product pricing and inventory. Zhang
Through the use of pricing and inventory joint decision, in Mingyang (2018) believes that the promotion of sales
order to solve the balance between supply and demand, is profit is the most concerned aspect of enterprises.
a lot of measures of supply chain management, a very Therefore, by exploring the joint decision between
effective way and method, has been recognized by various inventory and pricing, the probabilistic sales model and
industries. the general presale model, where consumers are strategic
consumers, are studied respectively. Based on the
background of e-commerce pre-sale of customer to
* Corresponding author: 3136714761@qq.com

© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(http://creativecommons.org/licenses/by/4.0/).
E3S Web of Conferences 372, 02004 (2023) https://doi.org/10.1051/e3sconf/202337202004
ICUEMS2023

business [5], Gao Limin (2020), based on different pricing upstream and downstream suppliers[8].
mechanisms and joint decision-making between pricing At the same time, it is assumed that the downstream
and inventory. It is found that the optimal two stages of the supplier is unable to meet the upstream supplier's order,
product: the pricing decision and the order quantity resulting in the shortage cost ℎ per unit; The cost of
decision are crucial, especially in the pre-sale mode [2]. In inventory held by downstream suppliers is ℎ per unit.
general, the goals of e-commerce are as follows: lowest Subtract the quantity demanded from the quantity
inventory level and maximum expected total profit. purchased to represent the change in inventory level.
Therefore, the author mainly considers perishable Downstream suppliers can price and purchase in the hope
products and new products, and establishes the price of maximizing profits over a period of time.The model for
commitment mechanism and the two-stage expected profit this problem actually consists of a dynamic pricing and the
model under the dynamic pricing mechanism. newsboy model combined.

1.3 Research significance 2.2 Variable definitions and assumptions

Theoretical significance: At present, the application of Assume that the downstream supplier makes the
subscription mode in supply chain management is not decision during the time period T; Assume that the demand
perfect, domestic and foreign scholars have little research function is; 𝑑 𝑡 𝑎 𝑏𝑝 𝑡 Assuming an initial
on the joint decision-making of pricing and inventory of inventory of 0 indicates the end of the previous phase and
products under the subscription mode. This paper the beginning of the next. The model parameters are as
constructs the pricing and inventory model under the follows:
subscription mode, not only can study the relevant theories Table 1 Model parameters and definitions
of the joint decision-making model of the product pricing Model parameters and definitions
and inventory under the uncertain supply and demand d(t) Demand for time t
condition, but also analyzes the uncertain supply and q(t) Quantity purchased at time t
demand condition and the subscription mode condition c Unit purchase cost
with specific examples based on the dynamic pricing and Random variable with uncertain supply,
inventory joint decision-making model[6]. Further, the y
density, distribution function f(y), F(y)
optimization scheme of the pricing and inventory decision The mean of a random variable y with
model under the subscription mode is proposed. r
uncertain supply
In reality, with the increasing volatility of market h1 Carrying cost per unit of inventory
environment, the uncertainty of demand and supply has h2 Loss cost per unit out of stock
become an important factor in global supply chain I(t) Inventory level at time t
management. Production uncertainty is mostly caused by I1(t) I1(t)=max{0,I(t)}
unexpected events that are not predicted, such as the I2(t) I2(t)=max{0,-I(t)}
damage of production and processing machines or parts,
major economic events at home and abroad, etc. At the
same time, the globalization trend of supply chain 2.3 Establish a dynamic pricing and inventory
procurement has introduced more possible impacts on joint decision model
procurement and supply, such as fluctuations in the global Firstly, the model is built with the goal of maximizing
financial industry, and various possible supply delays. the overall profit of the enterprise, and the constraint
Therefore, the study of product pricing and inventory joint conditions such as the change amount and the change
management in supply chain management under the interval of variables are written out as follows:
subscription mode is an important dimension of supply
chain supply and demand coordination under the uncertain max 𝐸 𝑝 𝑡 𝑑 𝑡 𝑐𝑦𝑞 𝑡 ℎ 𝐼 ℎ 𝐼 𝑑𝑡 (1)
environment. ,

𝑦𝑞 𝑡 𝑑 𝑡 (2)
2 Theoretical model of dynamic pricing
and inventory joint decision making 0 𝑞 𝑡 𝑞 (3)

𝐼 0 0 (4)
2.1 Problem Description
The objective function represents the expected profit
In a complete supply chain, a downstream supplier maximization of the firm. In the integrand function, the
needs to purchase a certain product in quantity from an first part 𝑝 𝑡 𝑑 𝑡 is the sales revenue of the enterprise,
upstream supplier. 𝑞 𝑡 Due to the influence of various the second part 𝑐𝑦𝑞 𝑡 is the purchase cost paid when
uncertain factors, the quantity of products that an upstream purchasing, the third part h 𝐼 is the inventory cost when
supplier can provide after receiving an order is, where the holding inventory, and the fourth part h I is the shortage
influence factor y of supply uncertainty is a random loss when the supply requirements cannot be met[9]. The
variable on, its density function is, and its distribution rest is the differential equation for the change in inventory,
function is.𝑦𝑞 𝑡 0,1 𝑓 𝑦 𝐹 𝑦 It is assumed that under and define the initial inventory as 0.
normal circumstances, these conditions are known to the In order to make the problem meaningful, suppose that

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the demand is greater than 0, then 𝑝 𝑡 ∈ 0, . Since the 𝑖𝑓 𝑎 𝑏𝜇 𝑡 2𝑎

target expression contains random variable y, in order to 𝑝 𝑡 𝑖𝑓 0 𝑎 𝑏𝜇 𝑡 2𝑎 (11)
𝐷 𝑡 𝑑 𝑠 𝑑𝑠 𝑖𝑓 𝑎 𝑏𝜇 𝑡 0
facilitate analysis and solution, let , then 0
𝑄 𝑡 𝑞 𝑠 𝑑𝑠
𝑑 𝑡 2.5 Summary of this chapter
there is .
𝑞 𝑡 This chapter studies the relationship between purchasing,
inventory and pricing of a single supplier in the whole
Then formula can be converted to definite equivalent
supply chain under the condition of supply uncertainty. By
form, as follows:
combining pricing strategy and purchasing decision, the
supplier can maximize its profit. Suppose that in a supply
max 𝑝 𝑡 𝑑 𝑡 𝑐𝑟𝑞 𝑡 ℎ 𝑦𝑄 𝑡
, chain, a downstream supplier needs to purchase from an
𝐷 𝑡 𝑓 𝑦 𝑑𝑦 ℎ 𝐷 𝑡 𝑦𝑄 𝑡 𝑓 𝑦 𝑑𝑦 𝑑𝑡 (5) upstream supplier. When an upstream supplier receives an
order, the upstream supplier cannot fully supply the
Where 𝑤 𝑡 , the original problem in the model product, and there is a random factor y. These conditions
are known to the upstream and downstream supplier, and
can be converted into a definite equivalent form composed the downstream supplier can maximize its profit through
of above formula. pricing and purchasing in a period of time.

2.4 Principle of maximum value in optimal control

theory
3. Comparative analysis of the subscr-
iption mode and the supply and demand
According to the maximum principle in optimal uncertain model
control theory, we can write its corresponding
Hamiltonian function (Hamilton) as follows:
3.1 Example analysis
𝐻 𝑝 𝑡 𝑑 𝑡 𝑐𝑟𝑞 𝑡 ℎ 𝑦𝑄 𝑡
𝐷 𝑡 𝑓 𝑦 𝑑𝑦 ℎ 𝐷 𝑡 𝑦𝑄 𝑡 𝑓 𝑦 𝑑𝑦 3.1.1 Example analysis under uncertain supply and
𝜆 𝑡 𝑞 𝑡 𝜇 𝑡 𝑑 𝑡 (6) demand conditions
When supply and demand are uncertain, assume that y is
𝜆 ℎ 𝑦𝑓 𝑦 𝑑𝑦 ℎ 𝑦𝑓 𝑦 𝑑𝑦 ℎ
uniformly distributed on 0，1 .
ℎ ℎ 𝑦𝑓 𝑦 𝑑𝑦 (7)
1，0 𝑦 1
𝜇 ℎ 𝑦𝑓 𝑦 𝑑𝑦 ℎ 𝑦𝑓 𝑦 𝑑𝑦 𝑓 𝑦 (12)
0，𝑜𝑡ℎ𝑒𝑟 𝑐𝑜𝑛𝑑𝑖𝑡𝑖𝑜𝑛
ℎ ℎ ℎ 𝑦𝑓 𝑦 𝑑𝑦 , 𝜇 𝑇 0 (8)
0，𝑦 0
The 𝜆 and 𝜇 is 𝑄 and 𝐷 association state variables 𝐹 𝑦 𝑦，0 𝑦 1 (13)
respectively. 𝑤 𝑡 demand rate/rate of adoption . if
the rate of demand < the rate of purchase, then having 1，𝑦 1
inventory will result in the cost of carrying inventory, if
the rate of demand > the rate of purchase, then there is the its expected number 𝑟 0.5 , Suppose ℎ 1，
loss of inventory. ℎ 3，𝑝 5，𝑇 5，𝑐 2, The demand function is
When the system is in a stationary state, 𝜆 0 𝜆 𝑇 𝑑 𝑡 6 𝑝 𝑡 ,The calculated solution is: 𝑝 𝑡
5.5 0.5𝑡 𝑞 𝑡 𝑡 1
ℎ 𝑦𝑓 𝑦 𝑑𝑦 𝑖𝑓 𝑤 𝑡 1
𝜆 (9)
ℎ 𝑦𝑓 𝑦 𝑑𝑦, ℎ 𝑦𝑓 𝑦 𝑑𝑦 𝑖𝑓 𝑤 𝑡 1
3.1.2 Example analysis under subscription mode
The following formula is given by 𝑐𝑟 𝜆: By introducing the subscription mode into the pricing
and inventory model, the supply uncertainty, namely the
𝑞 𝑖𝑓 𝜆 𝑐𝑟 random variable of supply uncertainty, can be reduced to
𝑞 𝑡 0, 𝑞 𝑖𝑓 𝜆 𝑐𝑟 (10) some extent y The value probability of is biased to 1, then
0 𝑖𝑓 𝜆 𝑐𝑟 there are three hypotheses as follows:
Hypothesis I: Random variable y, The value
The following formula is given by 𝑎 2𝑏𝑝 probability of is linearly increasing;
Hypothesis Ⅱ: Random variable y, The value
𝑏𝜇 0:
probability of is rising more and more sharply;
Hypothesis Ⅲ: Random variable y, The value
probability of is rising steadily;
Verify the above three hypotheses:

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Hypothesis I: suppose, again, then, solution. Set goal of the maximum profit of the supplier is constructed
𝑓 𝑦 𝐴𝑦, because 𝑓 𝑦 𝑑𝑦 1, then there is 𝑦 1, and solved. Finally, based on the constructed model, the
same set of concrete case data is used for example analysis.
get 𝑓 𝑦 2𝑦
Based on the established model of dynamic pricing and
Hypothesis Ⅱ/Ⅲ: Suppose, again, solved, therefore:
inventory joint decision, according to the maximum
set𝑓 𝑦 𝐵𝑦 𝐶𝑦, because 𝑓 𝑦 𝑑𝑦 1, then there principle of optimal control theory, using Hamiltonian
is 𝑓 1 1, 𝐵 3, 𝐶 4, get 𝑓 𝑦 3𝑦 4𝑦 function, the sufficient and necessary conditions for
Since hypothesis I is more able to present the stability obtaining the optimal solution are obtained. At the same
of random variable with uncertain supply, which is more time, it gives the pricing strategy and purchasing decision
consistent with the assumptions of this paper, this paper of single supplier in the whole supply chain under the zero
carries out an example analysis based on hypothesis I, inventory strategy, and shows that under certain
Under a subscription model supply uncertain random conditions, in the process of realizing the profit
variable y, 𝑓 𝑦 2y , 𝐹 𝑦 2𝑦 𝑑𝑦 𝑦 for maximization of the enterprise, it is very important to
example analysis. control the purchase and pricing, so as to keep the
inventory at a minimum.
Its expected value: 𝑟 𝑦𝑓 𝑦 𝑑𝑦 2𝑦 𝑑𝑦
0.67
3.2.2 Differences between the subscription mode
Also assume that the demand function: ℎ 1ℎ and the supply and demand uncertain model
3𝑝 5T 5c 2 ,The calculated solution is 𝑑 𝑡
6 𝑝 𝑡 , as shown in the figure below:𝑝 𝑡 4.47 The most significant effect of introducing the subscription
0.5𝑡 𝑞 𝑡 2.43 0.79𝑡. mode into the joint decision model of product pricing and
inventory is as follows: to some extent, the uncertainty of
supply and demand among enterprises at each node of the
supply chain can be reduced[5], so that the probability of
random variable y can be changed from the uniform
distribution in the case of uncertainty to the continuous
monotonously increasing distribution in the case of
subscription mode, so as to calculate.
Based on the joint decision model of dynamic pricing
and inventory of products built above, the case analysis is
Figure 1. Price and purchase curve corresponding to the carried out. In the specific case analysis of subscription
example. mode, the mathematical analytic formula method and
computer function image analysis method are introduced,
3.2 Connection and difference between model and the probability density function is determined by the
algorithm under subscription mode and method of hypothesis verification, and the solution is
uncertain supply and demand carried out.
Through the probability density function determined
by the hypothesis verification method, a set of case values
3.2.1 Connection between subscription mode and are taken for example analysis, and the computer function
model under supply and demand uncertainty image analysis method is used to compare. It is found that
In the case of subscription mode and supply and demand using the subscription mode for pricing is lower than the
uncertainty, the premise assumption is the relationship pricing under the uncertain condition, and the price is
between purchasing, inventory and pricing of a single more conducive to product sales. The subscription mode
supplier in the whole supply chain[10]. By combining the is more stable than the purchase quantity under the
pricing strategy with the purchasing decision, the supplier uncertain condition, and the purchase quantity is more
is expected to maximize its profit. Suppose that in a supply conducive to the enterprise to determine the ordering and
chain, a downstream supplier needs to purchase from an inventory strategy, as shown in the figure below.
upstream supplier. Due to various uncertain factors, the
upstream supplier cannot fully provide the product after
receiving the order. There is a random factor y, and these
conditions are known by the upstream and downstream
suppliers. In order to maximize profits over a period of
time.
In the dynamic pricing and inventory model, the
extended model of the deterministic storage EOQ model
learned in operations research and the idea of the Figure 2. Comparison between subscription mode and pricing
indeterminate storage newsboy model are applied in the and procurement under uncertainty.
condition of uncertain supply and demand or subscription
mode. In the process of analyzing the constructed model,
the maximum principle of the optimal control theory is
adopted[11]. With the help of Hamiltonian function, The

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4. Research conclusions and prospects pricing and inventory joint decision model, the initial
inventory is assumed to be zero, and the pricing,
This paper studies the technological development status of procurement and inventory strategies of a node enterprise
subscription mode at home and abroad and the application in the supply chain are too high. It is hoped that the
status of various industries, as well as the joint decision assumptions can be relaxed in the future research, and the
management status of product pricing and inventory, research can be carried out under more commonly
builds the joint decision model of product dynamic pricing applicable conditions. To increase the universality of the
and inventory, and based on the established dynamic pricing and inventory joint decision model and algorithm.
pricing and inventory joint decision model, carries on the (2) Based on the established pricing and inventory
case analysis under the condition of uncertain supply and joint decision model, this paper only calculates a node
demand conditions and subscription mode. By comparing enterprise in the whole supply chain when carrying out
the two, the following conclusions are obtained through concrete example analysis. In future studies, it should
model solving and example analysis, as well as the further consider how to make joint decision of product
comparison of the two cases: pricing and inventory in the fierce market competition
(1) First of all, this paper is consistent with the with multiple supply chains, multiple suppliers and
conclusions of classical literature on the joint decision of multiple products.
product pricing and inventory, that is, it is not feasible to
focus only on the single aspect of product pricing or
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