Dynamic markdown decisions based on a quality loss function in on-site direct-sale supply chains for perishable food

Abstract

Food loss and waste have become a critical problem worldwide. Determining an appropriate promotional strategy for reducing waste and environmental impacts to ensure sustainability is essential in supply chains (SCs). Considering quality losses, this paper proposes an on-site direct-sale dynamic SC inventory model involving one retailer and one contracted supply centre for perishable foods. This model enables the determination of optimal price markdown decisions while maximizing the total channel profit. Regularly priced and markdown products are substitutable during the markdown period, and their demand rates are dependent on price, quality, and time. The optimal solution for the price markdown timing is derived analytically, and a sensitivity analysis of various model parameters is conducted. Numerical studies are also presented to illustrate the effectiveness of the theoretical results; three scenarios with different types of customers served by the retailer are considered (general customers, product-quality-oriented customers, and price-oriented customers). Based on the theoretical and numerical findings, several managerial insights are provided.

Keywords:

• Markdown
• perishable food
• quality loss function
• shelf life
• supply chain inventory management

Acknowledgements

The authors are grateful to Professor Archibald, the Editor in Chief, the Associate Editor, and to the two anonymous referees for their valuable comments and suggestions, which have led to significant improvements in this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This research is supported by the Ministry of Science and Technology of Taiwan under Contract No. MOST108-2410-H-194-090-MY3.