Pricing and inventory policy for non-instantaneous deteriorating items in vendor-managed inventory systems: a Stackelberg game theory approach

Recent improvements in technologies highlight the importance of life-cycle management in the supply chain. This is more important when dealing with non-instantaneous deteriorating items due to the fact that these goods begin losing their marginal values once they are stored as inventories in the warehouses. In this regard, an accurate inventory policy should be taken into account for this type of deterioration. Considering different aspects of the supply chain, many assumptions have been made in the literature for inventory policies of non-instantaneous deteriorating items. Many of these simplifying assumptions are used in order to avoid the complexity of formulations and mathematical modelling. However, in this paper, a thorough and comprehensive model based on the Stackelberg game is proposed in order to consider a two-echelon supply chain with uncertain demand that is dependent upon price and time. Furthermore, a price-discount strategy is applied within the deterioration period as a persuasion strategy to increase customer demand and reduce deterioration costs. The different relationships between inventory parameters and variables are investigated by a precise sensitivity analysis, and the robustness of the presented results is confirmed. The results suggest the appropriate time for the beginning of a discount strategy and the amount of discount.