An inventory model for perishable item with two-stage pricing

Abstract

The purpose of this study is to determine an optimal inventory policy for perishable item with two-stage pricing mechanism in selling process. Inventory is one of the most important parts in business and industry that affects the profit. Control of inventory affects the costs incurred by the company, therefore the inventory must be balanced with needs. If the inventory is higher than needed, the company will be spending higher storage costs and the risk of damage to inventory, but if the inventory is lower than needed, there will be a production delay and the company will be unable to supply demand on time. This paper deals with fixed lifetime products by using two-stage pricing strategy, especially for agricultural products that are perishable and have a short shelf life. Using the concept of two-stage pricing mechanism in selling process, the mathematical expression for the profit function is derived and a solution procedure is proposed to determine the optimal policy. Finally, a numerical example is provided to illustrate the solution procedure. The results of this research can provide inventory managers with valuable suggestions in making the production policy.

Subject Classification:

• Operations research (90B05)
• Economics (97M40)

Keywords:

• Inventory model
• Two-stage pricing
• Perishable item