Joint Ordering and Pricing Policy for Perishable Items with Time-varying Deterioration Rate

Abstract

Abstract:

A joint ordering and pricing problem for perishable items with time-varying deterioration rate is discussed. Treating the maximized average profit as the objective and taking the disposal cost of decayed items into account, a joint ordering and pricing model is formulated, in which demand rate is dependent on both price and inventory level, the shortage is allowed and partially backlogged. Next, for any given pricing policy, the unique and optimal ordering policy is proved existent under a certain condition; on the other hand, for any given ordering policy, the existence of optimal pricing is also proved. In addition, it is proved that the optimal selling price obtained under the joint pricing and ordering decision is greater than that under the situation of making pricing decision separately. Furthermore, based on the proof and analysis of the model, an algorithm is proposed to search the optimal solution. Finally, the sensitivity analyses of main parameters of model are conducted by numerical simulation. The result shows that if the retailer ignores the influence of inventory level on the demand or the disposal cost of decayed items, the selling price will be low. As for products with high price elasticity, the retailer should adopt a low-pricing policy. If customers are impatient or products are with high substitutability, the optimal policy is to increase the selling price and shorten the shortage period.

Key words: perishable item with time-varying deterioration rate, ordering and pricing policy, price-and stock-dependent demand rate, partial backlogging

LI Guiping1, DUAN Yongrui2. Joint Ordering and Pricing Policy for Perishable Items with Time-varying Deterioration Rate[J]. Industrial Engineering Journal .

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