Optimal ordering and clearance strategies under demand uncertainty

Abstract The management of unsold inventory represents a significant issue for many manufacturing firms and retailers. Some clearance strategies have been proposed in previous researches to drain this undesirable inventory. This paper addresses the problem of the single-period ordering decisions and the selection of the appropriate clearance strategies under uncertain demand. We develop an MILP model to study the retailer’s optimal order quantity. The main objective is to maximize the total expected profit while considering the risk and the performance of the clearance strategies as constraints. We considered the case of uniform demand and two clearance strategies. The piecewise linearization approach was used to solve the model.