Optimal markdown and credit decisions in a two- warehouse integrated inventory model

In the case of perishable products whose demand is time-sensitive, the decisions on order and sale policies have to be appropriately made to minimize the costs of product decay. The markdown policy, widely adopted by retailers, is a well-known sales policy that effectively manages the revenue and cost of perishable inventories. A significant decision in this policy is to determine an optimal time to mark down the price and boost demand. Moreover, trade credits serve as short-term financing through which the seller sets a deadline for the buyer to pay for the purchased products. Once given a trade credit, the buyer is enabled to increase the order and make a better profit out of sales before meeting the credit deadline. If the optimal quantity of the order exceeds the capacity of the retailer’s warehouse, another warehouse should be rented. In this context, the present study aims to simultaneously examine markdown and credit decisions for perishable products in a two-warehouse inventory model. For this purpose, a set of theorems is used to obtain optimal sales and purchase decisions under integrated decision-making, and the proposed model is solved with numerical examples. Finally, sensitivity analyses are conducted to evaluate the effects of parameter variations on decision variables. The numerical results demonstrate the significance of a combination of credit financing and markdown policies for perishable inventories. It has also been shown that time-diminishing demand is beneficial for supply chains. The proposed model can help managers make optimal decisions on trade credit and markdown policies.