On jointly optimising the changes of seasonable goods and inventory replenishment

Abstract

Retailers often need to replace soon-to-be-unseasonable products with new seasonable goods when the season changes. The trade-off for such activities involves choosing between the salvage loss of the unseasonable product and the profit of selling the seasonable product early. This article develops a periodic-review inventory model for planning the changes of seasonable goods with state-dependent demand and cost parameters. We show that the single-period optimal policy for product changes is a threshold policy based on the initial inventory of the unseasonable goods. The corresponding optimal inventory policy follows a Purchase-Keep-Dispose policy if the incumbent product is kept or a base-stock policy if the incumbent product is replaced. Numerically, we find that the structure of the multi-period optimal policy resembles that of the single-period model. We propose a heuristic to solve the multi-period model and demonstrate its effectiveness. Our research provides insights into dynamically managing seasonable goods.

Keywords:

• stochastic inventory model
• dynamic programming
• seasonable goods
• retail operations

Acknowledgements

The work described in this article was supported by a grant from the City University of Hong Kong (Project No. 7200049) when the Z. Li was working at CityU. We thank Professor Peter Fleming (Editor-in-Chief), Renata Ashton (ADM), the associate editor, and three anonymous reviewers for their valuable comments and suggestions that helped improve the model and analysis presented in this article. F. Tao would also like to thank Professor Huaping Chen and Professor K.K. Lai for their guidance during his study at the CityU and in the USTC joint doctoral program. The editorial service provided by American Journal Experts is gratefully acknowledged.