An integrated lot-size model of deteriorating item for one vendor and multiple retailers considering market pricing using genetic algorithm

Abstract

In this paper, we propose a model to study influence of pricing and deteriorating rate on the supply chain level net profit and total inventory where genetic algorithm is used for determine the optimal solution. A one-vendor and multi-retailer supply chain for a single deteriorating finished product and raw materials is analyzed. Under the proposed strategy, the vendor buys a non-deteriorating materials to vendor a deteriorating finished product, delivers the finished product to all retailers by common replenishment periods based on VMI (vendor managed inventory) being implemented. All retailers who buy the finished product sell the finished product on their markets. In all of these markets, the finished product in different markets has substitution each other since consumers may have opportunity to buy the finished product from different retailer and Cobb-Douglas demand function is introduced to describe this market attribute. After developing an integrated product-inventory-marketing model for deteriorating product, genetic algorithm is conducted to calculate the optimal pricing and inventory policies. Finally we present the results of a detailed numerical study that analyses the market and deteriorating rate related parameters influence on the supply chain level net profit and inventory level.