Impact of Forthcoming Price Increase for Maximum Fixed Lifetime Product with Preservation Technology Investment and Price-Sensitive Demand

Abstract

AbstractWhenever a supplier proclaims a price rise, the effect is amplified at a predetermined point in the future. At that point, each retailer should decide whether to buy more stock or to purchase at a higher price to take benefit of the present lower price. The result of price changes on the retailer's daily replenishment strategy for deteriorating items with expiry dates is discussed in this model. Price-sensitive demand is addressed in this research and is appropriate for products whose demand falls rapidly as the price of the product rises. This article advocates two scenarios: (I) when the special-order time coincides with the retailer’s replenishment time; and (II) when the special-order time occurs during the retailer’s sales period. The crucial objective of this article is to determine the best ordering policies for the retailer in all cases that reduce the profit difference function between the regular order and the special order during the reduction time of the special-order quantity concerning cycle time, selling price, and investment for preservation technology. The scenarios are set up and demonstrated with numerical illustrations. Additionally, to investigate the impacts of key parameters on an optimum solution, a sensitivity analysis is carried out.KeywordsInventoryPrice increasePrice-sensitive demandMaximum fixed lifetimePreservation technology investment