Optimal pricing and replenishment policy for deteriorating inventory under stock-level-dependent, time-varying and price-dependent demand

Technological advance and changing customer preferences lead to falling demand with the passage of time for some products, often referred to as short life cycle. In this paper, we examine the inventory management of a short life cycle product that also deteriorates as time elapses. We consider a finite horizon multi-period setting where demand is deterministic, stock-level-dependent, time varying, and price-dependent. We seek to maximize the average profit per period by choosing an appropriate replenishment and pricing policy. Leveraging properties of the objective function, we develop an algorithm that determines the optimal value of several system decision variables that maximize profitability. We provide a numerical example that illustrates our solution approach after which we perform a sensitivity analysis.