Joint Quality Investment and Inventory Decisions for Perishable Items with Reference Quality Effect under the O2O Environment

Yuan Li,Yumei Hou

doi:10.1155/2019/8092065

Abstract

Reference quality, as a benchmark against which the purchase quality of a product is judged, has an important impact on consumers’ purchase decision, especially perishable items. Thus, how to determine an appropriate quality investment and ordering strategies for perishable items to maximize retailers’ profit is an essential task. A joint dynamic quality investment and inventory replenishment problem for perishable items with consideration of reference quality effect is investigated, where the retailer sells its products using a combination of the offline and online stores, and the sales function is sensitive to products’ quality and consumers’ reference quality. The optimal control model is established to maximize the retailer’s total profit by making a joint quality and inventory strategy. The continuous time dynamic optimal quality investment and inventory replenishment strategies with reference quality effect are obtained by Pontryagin’s maximum principle. Numerical experiments are accounted for the key system parameters on the optimal strategies.

Highlights

Along with the rapid development of Internet, many traditional retailers in catering and service industries are trying to lay out the offline to online (O2O) platform in order to expand market share and improve the competitiveness of the industry, such as McDonald’s and KFC, the world’s catering giants; JD.com, yhd.com, Beequick, and Missfresh, the well-known fresh goods retailers in China; and a large number of take-away retailers that are currently emerging
From the above literature review, there is no formal model presented to investigate the problem of joint quality investment and inventory replenishment decisions for perishable items while simultaneously considering the impact of consumers’ reference quality. These motivate us to do the exploration in this aspect in our paper. This paper addresses this issue by establishing a joint quality investment and inventory replenishment model for perishable items with the reference quality effect
We study a dynamic quality investment and inventory replenishment model of a retailer selling a single type of perishable products in the current O2O environment with reference quality effect in finite planning horizon

Summary

Introduction

Along with the rapid development of Internet, many traditional retailers in catering and service industries are trying to lay out the offline to online (O2O) platform in order to expand market share and improve the competitiveness of the industry, such as McDonald’s and KFC, the world’s catering giants; JD.com, yhd.com, Beequick, and Missfresh, the well-known fresh goods retailers in China; and a large number of take-away retailers that are currently emerging. Rabbani et al [8] analyze an optimal dynamic pricing and replenishment policy for perishable items with simultaneous deterioration of quality and physical quantity, where the demand rate is dependent on the quality of inventory and changes in price over time. From the above literature review, there is no formal model presented to investigate the problem of joint quality investment and inventory replenishment decisions for perishable items while simultaneously considering the impact of consumers’ reference quality. These motivate us to do the exploration in this aspect in our paper.

Model Formulation

Optimal Quality and Inventory Strategies

Numerical Analysis

Conclusion