Optimal pricing policies of an inventory model for deteriorating items with discounts

N. Madhavi, K. Srinivasa Rao and J. Lakshminarayana

International Journal of Operational Research, 2011, vol. 12, issue 4, 464-480

Abstract: Inventory models create a lot of interest due to its ready applicability at various practical situations. One of the most important considerations in developing the inventory models for deteriorating items is that the deteriorated item is thrown as waste. But in some practical situations at food and vegetable markets, the deteriorated items are sold for certain discounts. In this paper, we developed and analysed an economic order quantity model for deteriorating items with seconds sale. Here, it is assumed that the lifetime of the commodity is random and follows a two-component mixture of Weibull distribution. It is further assumed that the deteriorated items are sold with certain discounts. Assuming that the demand is a linear function of the selling price, the instantaneous state of inventory is derived by maximising the profit rate function. The optimal ordering and pricing policies are determined. The sensitivity of the model with respect to the parameters and costs is also studied. It is observed that the second sale has a significant impact on the optimal ordering quantity and pricing policies. This model also includes many of the earlier models as particular cases for specific values of the parameters.

Keywords: second sales; operational policies; EOQ; economic order quantity; deterioration; mixture distributions; optimal policies; pricing policies; inventory models; deteriorating items; discounts; deteriorated items; waste; food markets; vegetable markets; commodity lifetimes; Waloddi Weibull; linear functions; selling prices; mathematical distributions; ordering policies; profit rates; profit maximisation; parameters; operational research. (search for similar items in EconPapers)
Date: 2011
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