Development of pricing model for deteriorating items with constant deterioration rate considering replacement

Abstract

Proper inventory control policy and the optimal price for the items has always been one of the main topics of scientific research and industry. On the other hand, there are many products in the market witch are classified as deteriorating items. Therefore the problem of determining optimal price and optimal inventory policy for this type of items is very important. In this paper a 3 echelon supply chain consisting of a manufacturer, a distributor and a retailer is considered. There is only a single type of item with constant deterioration. Demand is deterministic and replenishment is instantaneous. The purpose of this study is to increase the total profit by determining the optimum values of the product price (p) and ordering cycle (T) of distributor. Since the products are deteriorating, some part of the initial stored inventory is lost. Therefore, distributor disposes the spoiled items and replaces them with the same amount of sound items. The replacement in the storehouse of the distributor is also instantaneous. Finally, numerical examples are presented to elaborate the model and sensitivity analysis is performed on the values of some parameters.