Optimal Pricing and Procurement Decisions for Items with Imperfect Quality and Fixed Shelf Life Under Selling Price Dependent and Power Time Pattern Demand

Abstract

AbstractProducts with a fixed shelf life pose a challenge to the retail industry. The consumers restrain to buy products that are nearing their expiry date. It is, therefore, of utmost importance to effectively manage the inventory of such products whose demand is influenced by their age. This research paper develops an inventory model for products with fixed shelf life. As the production process is not always perfect so the items received by the retailer may contain a proportion of defectives. Thus, the products go through an inspection process to separate out the defective items. Initially, the demand for the product depends on its selling price and shelf life but as the product approaches its expiry date the retailer offers a price discount before the cycle time to boost the demand of the product and during this period the product follows a power time pattern demand. A mathematical model is developed to estimate the optimal values of selling price and replenishment cycle time so as to maximize the total profit per unit time. Numerical examples are presented to show the validity of the model. Also, a sensitivity analysis is performed on different inventory parameters and their impact on the optimal values of decision variables is observed.KeywordsInventoryImperfect qualityShelf lifePower pattern demandEOQ