Developing an Integrated Approach for Inventory Control, Pricing and Advertisement of Deteriorating Items

Abstract

In this paper, an integrated approach for inventory control, pricing and advertisement of deteriorating items is proposed. The demand rate is a function of the selling price and advertisement, which is modeled as the frequency of advertisement in each replenishment cycle. To reflect a more practical situation, not only the prices of substitute products affect demand, but also the inventory holding cost is defined as a time-dependent function. In order to characterize the optimal solution, several theoretical results are derived which demonstrate existence and uniqueness of the optimal solution. Then an iterative solution algorithm is developed. Finally, to show validity of the proposed model and applicability of the developed algorithm procedure, numerical results are provided.