Optimal inventory replenishment and pricing for a single-manufacturer and multi-retailer system of deteriorating items

Abstract

This paper studies an integrated optimisation model of inventory replenishment and pricing decisions in a single-manufacturer multi-retailer system of deteriorating items. Two meta-heuristic algorithms, i.e., improved particle swarm optimisation incorporated with SA mechanism (SAPSO), and a continuous domain ant colony optimisation algorithm (CDACO) are developed. Experiments show that two algorithms are effective for solving the model; however, SAPSO has higher effectiveness, efficiency and accuracy than CDACO. Sensitivity analysis shows that price elasticity coefficient significantly impacts decisions of production and retailing, giving managerial implication that reducing price fluctuation can increase profit. However, the effect of deterioration of items is not significant both for cost and profit.