Industrial and Systems Engineering
University of Florida

EIN 6918: Graduate Seminar
Spring 2008

March 20, 2008

3PM, MAEB 211

Renewal Strategies for Perishable Products with Random Demand and Dynamic Pricing

Li-Ming Chen

Department of Industrial and Systems Engineering

University of Florida

Abstract

In this work, we consider the joint inventory control and pricing decisions for a single perishable item with random demand. The expected demand in a period depends on both age of the inventory and price. In each period, either an order is placed and the old inventory is salvaged or no order is placed and a new price is set. Whenever an order is placed, a fixed cost is incurred. Also, in case of shortage, excess demand is lost. Through the dynamic programming technique, we develop three different models with increasing flexibility. In the first model, the replenishment frequency is determined in advance and is fixed during the planning horizon. This assumption is relaxed in the second model. In the third model, we allow partial disposal to save inventory holding cost when excessive inventory is on-hand. In all of these models, inventories of two different ages are not kept together.

[Joint work with Amar Sapra]