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Journal Articles Journal of Industrial & Management Optimization Year : 2021

Joint optimal pricing and inventory management policy and its sensitivity analysis for perishable products: Lost sale case

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Abstract

In the real world, the demand cannot be depicted exactly because of customer behavior cannot be forecasted without error. In this paper, we study the effect of the error of the estimated price-demand parameters by analyzing the sensitivity of the optimal joint pricing and ordering policy on the price-demand parameters based on a periodic-review, multi-period and lost sale inventory model for perishable products with constant quantity decay rate and price-sensitive demand. Firstly, we formulate the joint pricing and inventory control problem and find the optimal ordering quantity and the optimal price for deterministic price-demand function. The optimal solutions show that the retailer tends to set a lower price in early periods of each ordering cycle in order to reduce the inventory holding costs. Furthermore, the sensitivity of the optimal joint pricing and inventory control system with respect to the price-demand parameters is examined analytically and evaluated numerically. The sensitivity analysis reveals that compared to the optimal ordering quantity, the optimal prices are less sensitive in the demand-price parameters. Finally, according to the findings of the sensitivity analysis, a heuristic method of regulating the estimated demand-price parameters is employed to improve the average profit.

Dates and versions

hal-03321140 , version 1 (17-08-2021)

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Xue Qiao, Zheng Wang, Haoxun Chen. Joint optimal pricing and inventory management policy and its sensitivity analysis for perishable products: Lost sale case. Journal of Industrial & Management Optimization, 2021, ⟨10.3934/jimo.2021079⟩. ⟨hal-03321140⟩
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