Joint Pricing and Inventory Control Decisions for Fashion Apparel with Considering Fashion Level and Partial Backlogging

Abstract

Apparel inventories have been crawling up for decades. The fashion level of clothing drops over time, resulting in a continuous decline in market value, a rapid reduction in demand, and unsold inventory. Poor inventory management weighs down the apparel industry. Inventory planning decisions are crucial for a fashion apparel retailer. When the good is highly perishable, the retailer may need to backlog demand in order to market the good at a reasonable price and reduce inventory costs. This study formulates a finite horizon inventory model for fashion apparel under deteriorating fashion level and partial backlogging conditions. This model jointly optimizes the selling price, length of inventory-holding period, and length of shortage period by maximizing the average profit. The conditions that characterize the optimal solution are established and an algorithm is proposed to search for the optimal solutions. A numerical example is provided to illustrate the algorithm and the solution procedure. Furthermore, sensitivity analysis of the key system parameters is carried out and some interesting managerial insights are presented. Findings clearly suggest that the presence of shortage has got an affirmative effect on ordering policy of the fashion apparel retailer.