OPTIMAL INVENTORY DECISIONS WITH ADVANCED SALES FOR DETERIORATING ITEMS

Abstract

This paper studies retailer’s optimal policies which include optimal replenishment, pricing and promotional cost for a two-phase
inventory system with a constant rate of deterioration. The first phase is advance booking period in which the product is offered
at a discounted price and delivery of the product is given as soon as the replenishment arrives. The second phase is spot sales
period in which the product is sold at a normal price. Products are considered to be deteriorated at a constant rate. Demand of the
product is influenced by promotion of the product as well as by the selling price of the product. The objective is to maximize the
total profit of the retailer with respect to cycle time, selling price and promotional cost through advertisement.