Coordinated Pricing and Base-Stock Policies for an Item With Price and Stock-Dependent Demand Subject to Decay and Fixed Lifetime

Abstract

We consider a firm who sells a perishable item that is subject to effects of decay and fixed shelf lifetime, facing a price and stock-level dependent demand rate. We assume the firm adopts the base-stock replenishment and the first-in-first-out issuing policies. Our model is a generalized version of the previous work by considering the retail price as a decision variable and taking into account the effect of decay. The objective of the model is to jointly determine the optimal selling price, base-stock level, and inventory cycle over an infinite planning horizon so that the net profit per time unit is maximized. The profit-maximizing problem is formulated as a multivariate optimization model, solved by an iterative search process combined with an enumeration scheme. An intensive numerical study shows that the pricing scheme can be an effective mechanism in profit improvement.

Coordinated replenishment and marketing policies for non-instantaneous stock deterioration problem

“…Teng and Chang (2005) provided the first model which considered price and stock-level-dependent demand for deteriorating items in an economic production quantity model. In Chen and Chien (2009), pricing and inventory management policies were investigated for the base-stock inventory model with FIFO policy. Giri and Bardhan (2012) studied a single-period inventory model with price and stock-level-dependent demand rate in a bi-level supply chain.…”

Optimal Control of Integrated Production – Forecasting System

“…Differentiating (20) with respect to t and then using successively the state equation (19) and the change of variable (20) yields…”

“…In [19], the authors approach an extended two-warehouse inventory model for a deteriorating product where the demand rate has been assumed to be a function of the on-hand inventory. In [20], the authors investigate a channel who sells a perishable item that is subject to effects of continuous decay and fixed shelf lifetime, facing a price and stock-level dependent demand rate. In [21], the authors develop a mathematical model to formulate optimal ordering policies for retailer when demand is practically constant and partially dependent on the stock, and the supplier offers progressive credit periods to settle the account.…”