Deep-Processing Service and Pricing Decisions for Fresh Products with the Rate of Deterioration

Abstract

The mismatch between supply and demand for fresh products and those that can potentially lead to the risk of spoilage has posed huge losses for industrial companies. To reduce the risk of spoilage of fresh products, some firms have attempted to adopt a deep-processing service to alleviate the imbalance. Therefore, we developed a framework to control the spoilage of the product by taking into account the deep-processing service. First, a differential equation for an inventory model of fresh product and deep-processed product that depended on the selling price and the deteriorating rate was developed. Based on this, a profit model for fresh product and the deep-processed product was developed, and the condition of whether the deep-processing service was required was shown by optimization theory. Furthermore, the existence and its uniqueness of such proportion of deep processing and the selling price of the fresh product were proved. Research results showed the deep-processing service acted as a buffer against the mismatch between the supply and demand for the fresh product. Industrial companies should make lower profits but a quicker turnover by setting a lower selling price when both the deteriorating rate and initial freshness level are high, and vice versa.