Joint Dynamic Pricing and Inventory Control for Perishable Products Taking into Account Partial Backlogging and Inflation

Abstract

A joint dynamic pricing and inventory model by considering the inflation and time value of money where the product has a limited lifetime is developed. The selling price depends on product lifetime and customer demand rate depends on the selling price and time. Also, the shortages are considered and partially backlogged. The main goal is to determine the optimal initial selling price, the economic order quantity, and the optimal replenishment period simultaneously in order to maximize the total net present value of profit. We represent that for given any number of replenishment the function of profit is concave. In order to find the optimal solution, the presented heuristic algorithm is applied. To represent the algorithm and procedure of solution, a numerical example is solved. The results show that applying the proposed dynamic pricing approach leads to a significant improvement in profit’s retailer. Finally, sensitivity analysis of key parameters model is performed and some managerial insights are presented.