An integrated analytical framework for inventory and pricing of perishable products in multi-echelon supply chains

Abstract

Inventory management and pricing strategies are fundamental to supply chain operations, particularly for wholesalers who serve as intermediaries between manufacturers and retailers at specific times. A wholesaler's profitability depends critically on two key operational decisions: effective inventory control to minimize costs and strategic price-setting for retail customers. This paper introduces an innovative hybrid model that combines optimization and discrete-event simulation to address these challenges, with a specific focus on perishable goods management and determining break-even pricing points. The proposed hybrid model is comprehensive in scope, accommodating multiple perishable products across various time periods and suppliers while accounting for the inherent uncertainties in wholesale operations. Its dual-component structure leverages optimization techniques for inventory cost minimization while employing simulation to address operational variability. The model provides detailed mathematical frameworks for calculating unit-level critical selling prices, both inclusive and exclusive of operational costs. To validate the model's effectiveness, the research presents a case study of a pharmaceutical wholesaler, drawing on data from the United Nations Office for Project Services. The hybrid model's performance was evaluated against two established empirical methodologies in the supply chain: the Lowest Acquisition Cost Approach and the Earliest Product Acquisition Approach. The results demonstrate significant improvements, with the hybrid model achieving a 20 % reduction in average total costs and an 18 % decrease in average critical selling price compared to traditional approaches.