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Optimizing Inventory and Pricing for Substitute Products with Soft Supply Constraints

Author

Listed:
  • Armando Meza

    (Universidad de Los Andes, Mons. Álvaro del Portillo 12455, Las Condes, Santiago 7620086, Chile)

  • Paolo Latorre

    (Universidad de Los Andes, Mons. Álvaro del Portillo 12455, Las Condes, Santiago 7620086, Chile)

  • Milena Bonacic

    (Universidad de Los Andes, Mons. Álvaro del Portillo 12455, Las Condes, Santiago 7620086, Chile)

  • Héctor López-Ospina

    (Universidad de Los Andes, Mons. Álvaro del Portillo 12455, Las Condes, Santiago 7620086, Chile)

  • Juan Pérez

    (Universidad de Los Andes, Mons. Álvaro del Portillo 12455, Las Condes, Santiago 7620086, Chile)

Abstract

This paper presents a profit optimization model for substitute products in a competitive, time-sensitive market with scarcity and shifting user preferences. The model maximizes profit, considering production costs and inventory maintenance. It uses a discrete choice model to represent demand, sensitivity to price, availability, and changing preferences. A two-phase PSO-type metaheuristic solution tackles the nonlinear, recursive model, efficiently managing inventories and evolving consumer preferences. The model integrates production decisions, inventories, and sales prices, considering scarcity conditions and user preferences. It uses a multinomial logit for the consumers’ demand function with soft exogenous constraints, which influence utility and change consumption preferences and choices. This research offers a tool for companies to manage stock, production, and pricing in a context where goods are substitutes, providing a new perspective on business strategy.

Suggested Citation

  • Armando Meza & Paolo Latorre & Milena Bonacic & Héctor López-Ospina & Juan Pérez, 2024. "Optimizing Inventory and Pricing for Substitute Products with Soft Supply Constraints," Mathematics, MDPI, vol. 12(11), pages 1-23, June.
    • Handle: RePEc:gam:jmathe:v:12:y:2024:i:11:p:1751-:d:1408780
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    References listed on IDEAS

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