A Joint Ordering, Pricing, and Freshness-Keeping Policy for Perishable Inventory Systems With Random Demand Over Infinite Horizon

Abstract

For an inventory system of a single type perishable product where the demand is dependent in the sale price plus a random variable, and the decay rate is dependent in freshness-keeping effort plus a random variable, due to their quality deterioration the amount of available products that can be used to meet the demand will decrease with a certain decay rate, which leads to wastage and decrease of profits. Freshness-keeping effort can reduce quality deterioration, while it also increases the cost. In order to maximize the expected profits, we investigate the joint ordering, pricing, and freshness-keeping problem for perishable products over infinite horizon. We present a Markov decision process model based on which a joint integrated ordering, pricing, and freshness-keeping policy is obtained by employing the policy iteration method. Some structural properties of this integrated policy are revealed in numerical experiments: the optimal ordering policy is the (s, S)-type, and the freshness-keeping policy and pricing policy have piecewise properties.