Optimal pricing for a perishable item under time-price dependent demand and time-value of money

Abstract

The present article develops an inventory model for a perishable item assuming that the demand rate depends not only on time, but also on selling price of the item. The deterioration rate of the item is taken to be constant and time-value of money is also considered. Shortages in inventory are allowed in all cycles and are completely backlogged. Planning horizon in the inventory problem is considered to be finite. The solution of the model determines the optimal number of replenishments, order quantity and price over finite planning horizon so that time-value of total profit associated with the inventory system is maximised. A heuristic approach is presented to determine the optimal solution of the proposed problem. The solution procedure is illustrated by four numerical examples. Sensitivity analysis of each example is carried out to study the effect of changes in the input parameters. All the results are graphically illustrated.