Piling and discounting perishable products: optimal replenishment and discounting policy for perishable products
This research presents new results on managing perishable inventory. More specifically, it examines the practice of displaying large quantities of perishable products at the beginning of the inventory cycle and then discounting them. The results support practitioners on developing a discount policy for perishable products.
Many researchers have been working on managing the inventory of products when the product demand depends on the inventory level of the stores. While many of them consider this dependency, none of them considers discounting the perishable products. This study intends to fill this gap and improve understanding of the common practice of piling excessive amounts of perishable products sold at a discounted price later.
The results explain the practice of overstocking and discounting perishable products often observed in retail and provide managerial insights for decision-makers on designing an effective markdown policy for the perishable product: determining the rate and timing of the markdown and the length of the inventory cycle.
The conditions under which a retailer maximizes profit are established. This study shows how the discount price should be chosen so that an optimal discount policy can be applied. It is an original contribution and adds new results to the literature on managing the inventory of perishable products. The results explain the practice of overstocking and discounting perishable products often observed in retail and provide managerial insights for decision-makers on designing an effective markdown policy for the perishable product: determining the rate and timing of the markdown and the length of the inventory cycle. A significant result in this study is that the end-of-cycle inventory, in case the product is discounted, is lower than that in the case it is not. Thus, this model could limit the quantity of products disposed of at the end of the inventory cycle.
The retail stores can use the optimization model to maximize their profits on perishable food while minimizing food waste.
Methodology
The inventory system under investigation is defined and the corresponding mathematical model is formulated. The conditions under which it is more profitable to discount the product are established. A numerical example is solved.
Applications and beneficiaries
Retail stores can use the mathematical model to design a markdown policy for perishable products and optimize their profits. In addition, they can minimize food waste.
Reference to the research
Agi M., Yan X., Hazir O., 2024. Piling and Discounting Perishable Products: Optimal Replenishment and Discounting Policy for Perishable Products, European J. Industrial Engineering, 18: 2, 225-241.
