Optimal Pricing and Replenishment Policies for Instantaneous Deteriorating Items with Backlogging and Permissible Delay in Payment under Inflation

Abstract

SYNOPTIC ABSTRACTIn this article, we develop an economic order quantity model to investigate the optimal replenishment policies for instantaneous deteriorating items under inflation. Demand is assumed to be a linear function of the selling price and decreases negatively exponentially with time over a finite planning horizon under delay in payment. Shortages are allowed and partially backlogged. Under these conditions, we model the retailer’s inventory system as a profit maximization problem to determine the optimal selling price, optimal order quantity, and optimal replenishment time. An easy-to-use algorithm is developed to determine the optimal replenishment policies for the retailer. We also provide optimal present value of profit when shortages are completely backlogged as a special case. Numerical examples are presented to illustrate the algorithm provided to obtain optimal profit. We also obtain managerial implications from numerical examples to substantiate our model.