An EOQ model for perishable goods with age-dependent demand rate

Abstract

We study the inventory management decisions of a retailer selling a single perishable good in a deterministic setting. We take into account consumers’ assessment of quality over the lifetime of the products, and assume that the demand rate is a linearly decreasing function of the age of the products. We analytically obtain the optimal cycle length of the retailer. Using our model, we obtain traditional non-perishable Economic Order Quantity (EOQ)-like lower and upper bounds on the cycle length and the profit, and show that they lead to near-optimal results for our typical examples, which are grocery items. We show that a perishable good acts similarly to a non-perishable good with unit holding cost equal to the ratio of contribution margin to lifetime. We also approximate the contribution margin the perishable good needs to have to maintain profitability parity with non-perishable goods.