Industrial Engineering and Management Systems

Korean Institute of Industrial Engineers (대한산업공학회)
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Optimal Lot-sizing and Pricing with Markdown for a Newsvendor Problem

  • Chen, Jen-Ming (Institute of Industrial Management National Central University) ;
  • Chen, Yi-Shen (Institute of Industrial Management National Central University) ;
  • Chien, Mei-Chen (Department of Industrial and Technology Management Vanung University)
  • Published : 2008.12.31
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Abstract

This paper deals with the joint decisions on pricing and ordering for a monopolistic retailer who sells perishable goods with a fixed lifetime or demand period. The newsvendor-typed problem is formulated as a two-period inventory system where the first period represents the inventory of fresh or new-arrival items and the second period represents the inventory of items that are older but still usable. Demand may be for either fresh items or for somewhat older items that exhibit physical decay or deterioration. The retailer is allowed to adjust the selling price of the deteriorated items in the second period, which stimulates demand and reduces excess season-end or stale inventory. This paper develops a stochastic dynamic programming model that solves the problem of preseason decisions on ordering-pricing and a within-season decision on markdown pricing. We also develop a fixed-price model as a benchmark against the dual-price dynamic model. To illustrate the effect of the dual-price policy on expected profit, we conduct a comparative study between the two models. Extension to a generalized multi-period model is also discussed.

Keywords

References

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