Dynamic inventory control and pricing strategies for perishable products considering both profit and waste

Abstract

With the increasing sustainability considerations throughout the world, there is an increasing interest in the effective management of perishable products both in the industry and the academia. There is a need to control the inventories, as well as the prices of perishable products in order to increase the profits while minimizing the waste. In this study, we focus on a retailer who sells old and new perishable food products, enabling demand shifts between products based on their prices and consumer behaviors. A bi-objective dynamic programming model is developed to optimize the discounted price, sale price, and order quantity of perishable food products in order to maximize the retailer’s profit and minimize food waste. We develop four static and dynamic pricing policies commonly practiced and quantify the advantages of dynamic pricing and price differentiation between old and new products in terms of both profit and waste. Our findings reveal that significant benefits can be obtained when the order quantity and the old product’s sale price decisions are given in a dynamic manner by considering the available inventory at hand. Additionally, this research analyzes the results of various weight combinations for profit and waste in the objective function. The findings highlight the significance of waste and sustainability concerns, underline the tradeoff between profit and waste and provide insights to companies to achieve improvements in their system results.

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