Joint pricing deteriorating inventory model considering product life cycle and advance payment with a discount facility

Abstract

The product life cycle of a deteriorating product is an important consideration in inventory management. This paper simultaneously investigates the optimum pricing and inventory decisions considering product life cycles under price-dependent demand and advance payment systems with a discount facility. A time-dependent holding cost is also introduced. The objective is to carefully balance the critical decision variables in order to maximize the total profit. Furthermore, the theoretical analysis validates the concavity of the profit function. A numerical example and sensitivity analysis are provided to show the characteristics of the model. The study shows that an advanced payment period, installment numbers, product’s maximum life cycle, purchasing cost and demand function significantly influence the total profit. This inventory model with a known product lifetime and advance payments can provide management insights to inventory manager in his/her strategic planning.