Retailing policy for perishable item sold from two bins with mixed issuing policy

Abstract

This paper deals with a retailer who sells single perishable product in two bins. The fresh items are sold at a list price in the primary bin and the unsold items that have reached a certain allowed age are transferred to the secondary bin to be sold at a discount price. It is assumed that the demand is affected by inventory level, selling price, product freshness, and demand leakage caused by the price difference of two bins. Also, products are sold under mixed issuing policy which is defined as a weighted sum of Last-In-First-Out and First-In First-Out issuing policy. With the objective of maximizing the retailer’s profit, we develop mathematical models for the following two cases: (1) opening primary shop only and (2) opening both primary shop and secondary shop. Noting that the objective function is too complicated to possess a closed-form optimal solution, a solution procedure is developed based on Tabu search. The validity of the model is shown by solving an example problem and the sensitivity study is performed on the system parameters.