Pricing strategies for a non-replenishable item under variable demand and inflation (Q1091249)

A model is developed for the pricing of non-replenishable inventory. Pricing strategies are examined that determine the minimum special price for immediate disposal of the entire stock. These are assessed using the return from inventory, net of holding costs, available for financing overheads and profits. Previous studies by \textit{J. A. George} [Interfaces 12, 53-56 (1982)] and \textit{G. Levary} [Oper. Res. 4, 738-740 (1956)] have presented models for pricing the immediate disposal case. These have assessed the strategy on the basis of the lump sum generated at the end of a certain period. Their results gave, in many instances, very low special prices. This paper's results do not support their contentions in most instances. Indeed for many practical situations a special price of at least 80\% of the normal price is required. Substantially lower special prices are only justified when declining demand causes units of inventory to be sold at scrap value.