Grocery perishables management

In this article, we study the joint pricing and inventory control problem for perishables when a retailer does not sell new and old inventory at the same time. At the beginning of a period, the retailer makes replenishment and pricing decisions, and at the end of a period, the retailer decides whether to dispose of ending inventory or carry it forward to the next period. The objective of the retailer is to maximize the long-run average profit. Assuming zero lead time, we propose an efficient solution approach to the problem, which is also generalized to solve three extensions to the basic model. A feature of the present study is that we consider explicitly the influence of perishability on the demand. Among the insights gathered from the numerical analysis, we find that dynamic pricing aids extending shelf life and when disposal incurs a lower cost, or even a positive salvage value, the retailer is induced to dispose earlier since the benefit of selling new inventory offsets the loss due to disposal. We also observe that the faster the perceived rate of deterioration, the lower the threshold of the ending inventory for disposal. Perhaps a bit counter-intuitive, maximizing profits does not mean eliminating disposals or expirations. © 2011 Production and Operations Management Society.