SIMULATION OF INVENTORY POLICY FOR PRODUCT WITH PRICE AND TIME-DEPENDENT DEMAND FOR DETERIORATING ITEM

Abstract

In a declining market for goods, we optimize the net profit in business when inventory management allows change in the selling prices n times over time horizon. We are computing optimal number of changes in prices, respective optimal prices, and optimal profit in each of the cycle for a deteriorating product. This paper theoretically proves that for any business setup there exists an optimal number of price settings for obtaining maximum profit. Theoretical results are supported by numerical examples for different setups (data set) and it is found that for every setup the dynamic pricing policy outperforms the static pricing policy. In our model, the deterioration factor has been taken into consideration. The deteriorated units are determined by the recurrence method. Also we studied the effect of different parameters on optimal policy with simulation. For managerial purposes, we have provided some "suggested intervals" for choosing parameters depending upon initial demand, which help to predict the best prices and arrival of customers (demand).