Periodic pricing and replenishment policy for continuously decaying inventory with multivariate demand

This paper deals with the joint decisions on pricing and replenishment schedule for a periodic review inventory system in which a replenishment order may be placed at the beginning of some or all of the periods. We consider a single product which is subject to continuous decay and a demand which is a function of price and time, without backlogging over a finite planning horizon. The proposed scheme may adjust periodically the selling price upward or downward that makes the pricing policy more responsive to structure changes in supply or demand. The problem is formulated as a dynamic programming model and solved by numerical search techniques. An extensive numerical study is conducted to attend qualitative insights into the structures of the proposed policy and its sensitivity with respect to major parameters. The numerical result shows that the solution generated by the periodic policy outperforms that by the fixed pricing policy in maximizing discount profit. (C) 2006 Elsevier Inc. All rights reserved.