The value of electronic marketplace in a perishable product inventory system with auto-correlated demand

Abstract

This paper studies a periodic review inventory system for perishable products with correlated demand on a finite horizon. In this system, a fixed quantity of products from the supplier is received in each period. This quantity must be determined before the first period and cannot be changed thereafter. The inventory level can be adjusted through purchasing and selling products in an electronic marketplace at the beginning of each period. The available supply and demand quantities in the electronic marketplace depend on the prices offered by the retailer. The retailer's optimal purchasing and selling quantities, and respective prices in the electronic marketplace are computed, and the expected total cost is shown to be convex with respect to the order quantity from the supplier, which enables an efficient algorithm in obtaining the optimal order quantity. Numerical experiments show that greater cost savings from electronic marketplace are obtained when demands in different periods are strongly correlated and greatly differ from each other.