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Inventory models with stock- and price-dependent demand for deteriorating items based on limited shelf space

This paper deals with the problem of determining the optimal selling price and order quantity simultaneously under EOQ model for deteriorating items. It is assumed that the demand rate depends not only on the on-display stock level but also the selling price per unit, as well as the amount of shelf/display space is limited. We formulate two types of mathematical models to manifest the extended EOQ models for maximizing profits and derive the algorithms to find the optimal solution. | Yugoslav Journal of Operations Research Volume 20 (2010), Number 1, 55-69 10.2298/YJOR1001055D INVENTORY MODELS WITH STOCK- AND PRICEDEPENDENT DEMAND FOR DETERIORATING ITEMS BASED ON LIMITED SHELF SPACE Chun-Tao CHANG, Yi-Ju CHEN, Tzong-Ru TSAI and Shuo-Jye WU Department of Statistics Tamkang University Tamsui, Taipei Received: May 2006 / Accepted: April 2010 Abstract: This paper deals with the problem of determining the optimal selling price and order quantity simultaneously under EOQ model for deteriorating items. It is assumed that the demand rate depends not only on the on-display stock level but also the selling price per unit, as well as the amount of shelf/display space is limited. We formulate two types of mathematical models to manifest the extended EOQ models for maximizing profits and derive the algorithms to find the optimal solution. Numerical examples are presented to illustrate the models developed and sensitivity analysis is reported. Keywords: Inventory control, pricing, stock-dependent demand, deterioration. 1. INTRODUCTION In the classical inventory models, the demand rate is regularly assumed to be either constant or time-dependent but independent of the stock levels. However, practically an increase in shelf space for an item induces more consumers to buy it. This occurs owing to its visibility, popularity or variety. Conversely, low stocks of certain goods might raise the perception that they are not fresh. Therefore, it is observed that the demand rate may be influenced by the stock levels for some certain types of inventory. In years, marketing researchers and practitioners have recognized the phenomenon that the demand for some items could be based on the inventory level on display. Levin et al. (1972) pointed out that large piles of consumer goods displayed in a supermarket would attract the customer to buy more. Silver and Peterson (1985) noted that sales at the retail 56 C., T., Chang, et. al. / Inventory Models With Stock-And .