Optimal Policies for Perishable Items when Demand Depends on Freshness of Displayed Stock and Selling Price

Display of stock plays an effective role to boost up the demand as it encourages customer to buy more. For perishable good freshness is also an important factor affecting its demand, as consumers look for fresh items. Selling price is also a major factor affecting the demand. This paper proposes an inventory model where demand depends on selling price, freshness of item and displayed stock. The traditional assumption of zero ending inventories is relaxed to a non-zero ending inventory. As it may be profitable to have a closeout sale at a markdown price, and always keep on-hand fresh displayed stocks if the demand is freshness-and- stock dependent. The objective is to maximize the total profit with respect to three decision variables (i.e., unit price, cycle time and ending-inventory level). Numerical examples are presented to validate the model and sensitivity analysis of inventory parameters is done to understand their effect in determining optimal policies.