Modelling retail inventory pricing policies under service level and promotional efforts during COVID-19

Abstract

Most supply chain and production systems faced multiple manufacturing and delivery challenges during COVID-19 and transformed their supply chain for improved customer service. These challenges are mostly related to stocking and managing the inventory flow throughout the supply chain (from manufacturer to end consumer). Due to the COVID-19 travel and movement restrictions, inventory reorganisation is necessary for fulfilling consumer demand with adequate service facilities. The safety and serviceability of inventory consumption is the primary concern of many retail grocery stores and consumers. Maintaining the supply of groceries items during and post COVID-19 time without disruption is a real operational and policy challenge. Therefore, this research tries to solve an inventory pricing mechanism and retailer's profit under the optimal service level and retailers' promotional efforts. The proposed optimisation model is validated in the grocery retail sector. The grocery retail market situation is modelled when the demand for the grocery product (which may be essential items) and selling price depending on the investment in item promotional effort and consumer serviceability. The retail grocery store's investment in the product promotional efforts, such as awareness of the item availability and no-contact delivery which, may attract consumers. Therefore, the proposed inventory consumption is modelled with an optimisation problem to maximise the store profit with the optimal investment in promotional activities and service facilities to the consumers and maintain an optimal replenishment cycle. The optimisation model is tested with three different cases (no investment in promotional efforts, no investment in service facility, and investment in both) of investment to maximise the retailer's profit and stock availability. The optimality results depicted that investment in promotional efforts and service facility givens higher profit to the retailer. The proposed optimisation model's policy implications would help grocery retail store managers to develop operational strategies for maximising profit with the optimal service level and promotional efforts.