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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
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 a given 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 substituable products. The optimal order quantities and prices are obtained by maximizing the total expected profit over the lifetime which takes 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
0377-2217
594-602
Fang, Fei
0be9695c-e812-4001-86e3-3ec3b553a3aa
Nguyen, Tri-Dung
a6aa7081-6bf7-488a-b72f-510328958a8e
Currie, Christine
dcfd0972-1b42-4fac-8a67-0258cfdeb55a
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), 594-602. (doi:10.1016/j.ejor.2020.08.002).

Record type: Article

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 a given 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 substituable products. The optimal order quantities and prices are obtained by maximizing the total expected profit over the lifetime which takes 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
Restricted to Repository staff only until 31 March 2023.
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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
ORCID for Tri-Dung Nguyen: ORCID iD orcid.org/0000-0002-4158-9099
ORCID for Christine Currie: ORCID iD orcid.org/0000-0002-7016-3652

Catalogue record

Date deposited: 07 May 2019 16:30
Last modified: 26 Nov 2021 02:56

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Contributors

Author: Fei Fang
Author: Tri-Dung Nguyen ORCID iD

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