We study a continuous-review acquisition problem, in which the raw material price follows a discrete-state Markov process and demand is compound Poisson. We show that one optimal policy is of the order-up-to type. Under our mean reversion and time continuity conditions, we further show that the order-up-to levels are decreasing at the current price level. At the same time, our computational stu...

We consider a firm that periodically procures raw material units, stores them, and processes them into finished products upon order arrivals. The raw material cost evolves in a Markovian fashion, whereas the demand process is influenced by both the raw material cost and sales prices charged by the firm. The firm controls both the raw material procurement activity and sales price in each period....