Joint pricing and inventory decisions for substitutable and perishable products under demand uncertainty
Joint pricing and inventory decisions for substitutable and perishable products under demand uncertainty
In this paper, we develop a model for dynamic pricing and inventory decisions for multiple substitutable and perishable products under a multiple-period lifetime. Retailers place orders at the beginning of the first period, and products will be sold at full price during that period. All leftover products will then be carried over to the subsequent periods and sold at discounted prices. Demands for leftover products are assumed to follow a linear stochastic model depending on the discounted prices of the substitutable products. The optimal order quantities and prices are obtained by maximizing the total expected profit over the lifetime, taking into account the revenue, the backorder cost and the holding cost. We provide analytical properties of the optimal policy such as the concavity of the value functions and then utilise these in the numerical scheme for finding the optimal prices and ordering quantities. Experimental results are reported through a case study of a high-street fashion company, demonstrating the benefits of considering pricing and inventory decisions simultaneously for substitutable products.
Demand uncertainty, Dynamic programming, Inventory, Perishable products, Pricing, Substitution
594-602
Fang, Fei
0be9695c-e812-4001-86e3-3ec3b553a3aa
Nguyen, Tri-Dung
a6aa7081-6bf7-488a-b72f-510328958a8e
Currie, Christine
dcfd0972-1b42-4fac-8a67-0258cfdeb55a
1 September 2021
Fang, Fei
0be9695c-e812-4001-86e3-3ec3b553a3aa
Nguyen, Tri-Dung
a6aa7081-6bf7-488a-b72f-510328958a8e
Currie, Christine
dcfd0972-1b42-4fac-8a67-0258cfdeb55a
Fang, Fei, Nguyen, Tri-Dung and Currie, Christine
(2021)
Joint pricing and inventory decisions for substitutable and perishable products under demand uncertainty.
European Journal of Operational Research, 293 (2), .
(doi:10.1016/j.ejor.2020.08.002).
Abstract
In this paper, we develop a model for dynamic pricing and inventory decisions for multiple substitutable and perishable products under a multiple-period lifetime. Retailers place orders at the beginning of the first period, and products will be sold at full price during that period. All leftover products will then be carried over to the subsequent periods and sold at discounted prices. Demands for leftover products are assumed to follow a linear stochastic model depending on the discounted prices of the substitutable products. The optimal order quantities and prices are obtained by maximizing the total expected profit over the lifetime, taking into account the revenue, the backorder cost and the holding cost. We provide analytical properties of the optimal policy such as the concavity of the value functions and then utilise these in the numerical scheme for finding the optimal prices and ordering quantities. Experimental results are reported through a case study of a high-street fashion company, demonstrating the benefits of considering pricing and inventory decisions simultaneously for substitutable products.
Text
Joint Pricing and Inventory Decisions for Substitutable and Perishable Products under Demand Uncertainty EJOR
- Accepted Manuscript
More information
Accepted/In Press date: 1 August 2020
e-pub ahead of print date: 31 March 2021
Published date: 1 September 2021
Additional Information:
Funding Information:
The authors would like to thank the Editor and the three anonymous reviewers for their valuable comments and detailed suggestions on how to improve the manuscript. The second author acknowledges the funding support from the Engineering and Physical Sciences Research Council (grant EP/P021042/1 ).
Publisher Copyright:
© 2020
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
Keywords:
Demand uncertainty, Dynamic programming, Inventory, Perishable products, Pricing, Substitution
Identifiers
Local EPrints ID: 430624
URI: http://eprints.soton.ac.uk/id/eprint/430624
ISSN: 0377-2217
PURE UUID: ecd48900-3d5a-446c-bc28-599553019f72
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Date deposited: 07 May 2019 16:30
Last modified: 06 Jun 2024 04:12
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Author:
Fei Fang
Author:
Tri-Dung Nguyen
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