An Integrated Pricing and Inventory Model for Deteriorating Products in a two stage supply chain under Replacement and Shortage

Abstract

In this paper a two-stage supply chain including a wholesaler and a retailer is investigated. In which retailer acts as a vendor and sells the products to the final customers. This chain only produces a single deteriorating product with constant deteriorating rate. Demand in this chain is deterministic and lead time for replenishment and replacement of retailer’s stock is considered to be zero. The objective of this study is to maximize total chain’s profit by determining the optimal values of retailer’s selling price () and order cycle length (). Since due to deterioration, a part of the initial stock is deteriorated, so the retailer residuals (recycles) the deteriorated part and replace healthy product as needed instead. Two scenarios with shortage and without shortage assumption are developed. Finally numerical examples are presented to show the applicability of the proposed models and sensitivity analyze on some parameter’s values is conducted.