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Joint optimal dynamic pricing and replenishment policies for items with simultaneous quality and physical quantity deterioration

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  • Rabbani, Masoud
  • Pourmohammad Zia, Nadia
  • Rafiei, Hamed

Abstract

This paper discusses optimal dynamic pricing and replenishment policies for items with simultaneous deterioration of quality and physical quantity. Qualitative deterioration is assumed to be instantaneous, while physical deterioration follows non-instantaneous pattern. In order to tackle dynamic essence of the problem, selling price is defined as a time-dependent function of the initial price and discount rate. The product is sold at the initial price value in the time period with no physical quantity deterioration; subsequently it is exponentially discounted to boost customer's demand. In addition to price, the demand rate is dependent on the quality of inventory and changes in price over time. This consideration has enhanced dynamic characteristic of the proposed model. The model seeks to maximize total profit of the system by determining the optimal replenishment cycle, initial price and discount rate. In order to characterize the optimal solution several theoretical results are derived which demonstrate existence and uniqueness of the optimal solution. Then an iterative solution algorithm is developed based on these theoretical results. Finally, in order to analyze the behavior of model and illustrate the solution procedure numerical results accompanied by sensitivity analyses of key parameters of the model are provided.

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  • Rabbani, Masoud & Pourmohammad Zia, Nadia & Rafiei, Hamed, 2016. "Joint optimal dynamic pricing and replenishment policies for items with simultaneous quality and physical quantity deterioration," Applied Mathematics and Computation, Elsevier, vol. 287, pages 149-160.
    • Handle: RePEc:eee:apmaco:v:287-288:y:2016:i::p:149-160
    DOI: 10.1016/j.amc.2016.04.016
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    5. Rini & Priyamvada & Chandra K. Jaggi, 2021. "Sustainable and flexible production system for a deteriorating item with quality consideration," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 12(5), pages 951-960, October.
    6. Cui, Ligang & Deng, Jie & Liu, Rui & Xu, Dongyang & Zhang, Yajun & Xu, Maozeng, 2020. "A stochastic multi-item replenishment and delivery problem with lead-time reduction initiatives and the solving methodologies," Applied Mathematics and Computation, Elsevier, vol. 374(C).
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    9. Buisman, M.E. & Haijema, R. & Bloemhof-Ruwaard, J.M., 2019. "Discounting and dynamic shelf life to reduce fresh food waste at retailers," International Journal of Production Economics, Elsevier, vol. 209(C), pages 274-284.

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