Inventory renewal for a perishable product: Economies of scale and age‐dependent demand

Li‐Ming Chen and Amar Sapra

Naval Research Logistics (NRL), 2021, vol. 68, issue 3, 359-377

Abstract: We consider a finite‐horizon, periodic‐review system for a perishable product at a retailer that faces stochastic, age‐dependent demand and loses excess demand, if any. For this system, we build three models that capture two sources of unfilled demand, insufficient inventory and inappropriate age, and penalize them at different rates. The models are characterized by increasing replenishment flexibility, and the goal of each model is to identify when to place an order and the quantity whenever an order is placed. In the first model, reorder intervals are equal. In the second model, reorder intervals can vary across orders. In the third model, reorder intervals continue to remain flexible but the retailer can also partially salvage her inventory whenever she has excess inventory. Using the models, we explore the effect of lost‐sales penalties on the structure of the optimal value function. We find that the inventory‐related cost in a period may lack convexity if the ratio of penalties for stockout and high age is below a threshold, which percolates to the value function as well. We also identify properties of the optimal replenishment policy for the three models. Finally, we conduct numerical experiments to identify the marginal value added by the flexibility in reorder intervals and the option to partially salvage inventory as a function of model parameters.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/nav.21956

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:68:y:2021:i:3:p:359-377

Access Statistics for this article

More articles in Naval Research Logistics (NRL) from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().