Combination of pricing and inventory policies for deteriorating products with sustainability considerations

Economic, environmental, and social criteria are all being taken into consideration simultaneously when determining pricing policies or inventory levels in sustainable production management. The combination of pricing and inventory policies is an important source of leverage for the efficient management of perishable products. This paper, among the first studies, proposes the problem of devising optimal pricing and inventory management decisions simultaneously where the environmental and social criteria are contributed for perishable complementary products replenished and sold by the same company. This study considers two interrelated price-sensitive linear demand functions to consider the possibility of shortage with both budget and warehouse capacity constraints. Another contribution of the proposed model is to consider an upper bound for environmental pollution and a lower bound for job opportunities as the constraints to the model. As a complex optimization model, the challenge of complexity is addressed by a heuristic algorithm for finding an optimal solution. After an extensive analysis using numerical examples, some managerial insights are concluded from the results. One finding from these analyses confirms that the total capacity of the warehouse, the total available budget, carbon emissions, and variable job opportunities have a high impact on the optimal solution to find a balance between sustainability criteria for making pricing and inventory policies.