Optimal Inventory and Price Markdown Policy for a Two-Layer Market with Demand being Price and Time Dependent

This paper considers a SCM issue concerned with an integrated problem of inventory control and dynamic pricing strategies when demands are price and time dependent. The associated price markdowns are conducted for inventory control in a two-layer market consisting of retailer and outlet as in fashion apparel market. The objective function consists of revenue terms (sales revenue and salvage value) and purchasing cost term. Specifically, decisions on price markdowns and order quantity are made to maximize total profit in the supply chain so as to have zero inventory level at the end of the sales horizon. To solve the proposed problem, a gradient method is applied, which shows an optimal decision on both the initial inventory level and the discount pricing policy. Sensitivity analysis is conducted on the demand parameters and the final comments on the practical use of the proposed model are presented.