Inventory model for deteriorating items with freshness and price dependent demand: Optimal discounting and ordering policies

A major part of retail industry deals with items whose freshness declines with time, resulting in lower demand at the same price. The item may later begin to deteriorate, when it is customary to offer discount in order to boost sales. A discounting policy may bring many benefits for the retailer, if correctly chosen. Motivated by this we have developed and analyzed an inventory model when demand for a deteriorating item depends initially only upon its selling price and later also on the freshness condition. We consider general demand function and general deterioration distribution for an inventory model with lost sales shortage. It is shown that net profit is a concave function of the period with positive inventory and conditionally concave function of discount. Important managerial insights obtained from sensitivity analysis suggest some policies counter to those commonly practiced by the retailers while others are in concurrence with the strategies in vogue.