Title: A two period lot sizing and pricing model for a perishable/seasonal item

Authors: Prakash Abad

Addresses: DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada

Abstract: In this study, we develop a two-period model for determining the lot size, period-one price and the rule for setting period-two price. The proposed model is applicable to lot sizing and pricing of a perishable or seasonal good when demand for the good is uncertain. In case of a perishable good, the retailer is assumed to follow a fixed replenishment interval which is assumed to be shorter than the fixed lifespan of the product. The interval in turn is divided into two periods. We represent demand in each period using an additive error demand function where expected demand is a decreasing function of the selling price. Consumers prefer fresh products and a farther 'best before' date, i.e., when a good is perishable, there tends to be value drop as units age over the periods. In case of a seasonal good, the planning horizon is the entire season and there may or may not be value drop over the two periods.

Keywords: service level; stochastic optimisation; inventory management; lot sizing; pricing; two-stage; retailing; value drop; seasonal good.

DOI: 10.1504/IJSOM.2021.117641

International Journal of Services and Operations Management, 2021 Vol.39 No.4, pp.583 - 599

Received: 08 Mar 2019
Accepted: 10 Jun 2019
Published online: 20 Sep 2021 *

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