(A) discount policy for perishable items sold from two shops with inventory level and price dependent demand

Abstract

Products having a fixed known expiry date, usually written on the label of the product, are classified as perishable products. When buying a perishable product, consumers are less likely to purchase the products whose expiry dates are closer. To stimulate the demand of items near expiry dates, retailers discount their list prices. In this thesis, we assumed that there are two different shops: the fresh items are sold at a list price in the primary shop and after their allowed age at the primary shop the leftovers are transferred to the secondary shop and sold at a discount price. We also assume that demand rate of each shop is independent of each other, and a function of inventory level and price. And, many customers select the newest items at the stack that will generally results in a LIFO policy, thus LIFO issuing policy is considered in this study. There are three decision variables to maximize profit. First is the reduced price in the secondary shop. Second is the allowed age at the primary shop, i.e., the time when the items at the primary shop have to be transferred to the secondary shop. Finally, we have to decide order quantities at the primary shop. It is not guaranteed that opening secondary shop is always better than opening primary shop only. So we consider two cases: first case is opening primary shop only while second case is opening both primary shop and secondary shop. Model is developed for these two cases. After solving two cases, we select better case. Numerical examples are solved by Tabu search algorithm for sensitivity analysis.