Inventory control and pricing strategies for perishable products

With the increasing sustainability considerations throughout the world, there is an increasing interest in the effective management of perishable products both in the industry and the academia. There is a need to control the inventories, as well as the prices of perishable food products to increase the profits while minimizing the waste. This thesis focuses on a retailer selling old and new perishable food products, allowing demand shifts between products based on their prices and consumer behaviors. In the first part, we develop a bi-objective dynamic programming model to optimize the discounted price, sale price, and order quantity of perishable food products, aiming to maximize the retailer's profit and minimize food waste. We introduce four static and dynamic pricing policies, quantifying the benefits of dynamic pricing and price differentiation between old and new products regarding profit and waste. Our findings reveal that significant benefits can be obtained when the order quantity and the old product's sale price decisions are given in a dynamic manner by considering the available inventory at hand. In the second part, we address a retailer's problem of selling a perishable food product with different ages through two branches. We create a bi-objective dynamic programming model to identify the optimal old product price, sale price, order quantity, and the quantity of shared inventory between branches, aiming to maximize profit and minimize waste. We explore the role of inventory sharing between branches and its effect on retailer's optimal dynamic pricing and inventory decisions and demonstrate how it can effectively reduce food waste and increase profit. Our results reveal that inventory sharing across branches helps to balance and separate inventory effectively. Each part of this thesis analyzes the results of various weight combinations for profit and waste in the objective function. The findings highlight the significance of waste and sustainability concerns, underline the trade-off between profit and waste and provide insights to companies to achieve improvements in their system results.