Dynamic pricing, promotion and replenishment policies for a deteriorating item under permissible delay in payments

We study the problem of dynamic pricing, promotion and replenishment for a deteriorating item subject to the supplier's trade credit and retailer's promotional effort. In this paper we adopt a price- and time-dependent demand function to model the finite time horizon inventory for deteriorating items. The objective of this paper is to determine the optimal retail price, the promotional effort and the replenishment quantity so that the net profit is maximized. We discuss the properties and develop an algorithm for solving the problem described. The numerical analyses show that an appropriate promotion policy can benefit the retailer and that the promotion policy is important, especially for deteriorating items. Furthermore dynamic decision-making is shown to be superior to fixed decision-making in terms of profit maximization. Some special cases, such as with no credit period and for non-deteriorating items, are discussed as is the influence of the time-varying demand, the rate of deterioration and the credit period on the retailer behavior.

[1]  Horng-Jinh Chang,et al.  An inventory model for deteriorating items with linear trend demand under the condition of permissible delay in payments , 2001 .

[2]  R. Higgins,et al.  Inventory Policy and Trade Credit Financing , 1973 .

[3]  Yu-Chung Tsao,et al.  Channel coordination, trade credit and quantity discounts for freight cost , 2007 .

[4]  Horng-Jinh Chang,et al.  An inventory model for deteriorating items with partial backlogging and permissible delay in payments , 2001, Int. J. Syst. Sci..

[5]  Y.-F. Huang,et al.  Optimal retailer's ordering policies in the EOQ model under trade credit financing , 2003, J. Oper. Res. Soc..

[6]  C. Jaggi,et al.  A joint approach for setting unit price and the length of the credit period for a seller when end demand is price sensitive , 2003 .

[7]  Hark Hwang,et al.  Optimal pricing and ordering policies for retailers under order-size-dependent delay in payments , 2003, Comput. Oper. Res..

[8]  B. Sarker,et al.  An ordering policy for deteriorating items with allowable shortage and permissible delay in payment , 1997 .

[9]  S. Shinn.  Determining optimal retail price and lot size under day-terms supplier credit , 1997 .

[10]  Yung-Fu Huang,et al.  Economic order quantity under conditionally permissible delay in payments , 2007, Eur. J. Oper. Res..

[11]  Hark Hwang,et al.  Joint price and lot size determination under conditions of permissible delay in payments and quantity discounts for freight cost , 1996 .

[12]  Philip M. Wolfe,et al.  An inventory model for deteriorating items , 1991 .

[13]  Ram Rachamadugu,et al.  Effect of Delayed Payments (Trade Credit) on Order Quantities , 1989 .

[14]  Peter Chu,et al.  Economic order quantity of deteriorating items under permissible delay in payments , 1998, Comput. Oper. Res..

[15]  Kun-Jen Chung,et al.  Lot-sizing decisions under trade credit depending on the ordering quantity , 2004, Comput. Oper. Res..

[16]  S. Goyal.  Economic Order Quantity under Conditions of Permissible Delay in Payments , 1985 .

[17]  M. Bergen,et al.  The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains , 1997 .

[18]  Pinar Keskinocak,et al.  Dynamic pricing in the presence of inventory considerations: research overview, current practices, and future directions , 2003, IEEE Engineering Management Review.

[19]  Hark Hwang,et al.  Retailer's pricing and lot sizing policy for exponentially deteriorating products under the condition of permissible delay in payments , 1997, Comput. Oper. Res..

[20]  Horng-Jinh Chang,et al.  A finite time horizon inventory model with deterioration and time-value of money under the conditions of permissible delay in payments , 2002, Int. J. Syst. Sci..

[21]  L. Ouyang,et al.  AN EOQ MODEL FOR DETERIORATING ITEMS UNDER SUPPLIER CREDITS LINKED TO ORDERING QUANTITY , 2003 .

[22]  Peter P. Belobaba,et al.  Survey Paper - Airline Yield Management An Overview of Seat Inventory Control , 1987, Transp. Sci..

[23]  S. Aggarwal,et al.  Ordering Policies of Deteriorating Items under Permissible Delay in Payments , 1995 .

[24]  Jeffrey I. McGill,et al.  Revenue Management: Research Overview and Prospects , 1999, Transp. Sci..

[25]  Chris Chapman,et al.  Credit Policy and Inventory Control , 1984 .

[26]  Roman Kapuscinski,et al.  Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort , 2004, Manag. Sci..

[27]  Jun-Sik Kim,et al.  An optimal credit policy to increase supplier's profits with price dependent demand functions , 1994 .

[28]  H. G. Daellenbach,et al.  Inventory Control and Trade Credit , 1986 .

[29]  Terry A. Taylor,et al.  Supply Chain Coordination Under Channel Rebates with Sales Effort Effects , 2002, Manag. Sci..

[30]  Kun-Jen Chung.  A theorem on the determination of economic order quantity under conditions of permissible delay in payments , 1998, Comput. Oper. Res..

[31]  R. MacAvoy,et al.  Frictionless Commerce? A Comparison of Internet and Conventional Retailers , 1999 .