Simple Policies with Provable Bounds for Managing Perishable Inventory

Abstract

The two fundamental decisions in the management of perishable inventory are how much new inventory to order and how much old inventory to clear before expiration. These decisions are known to be difficult due to the curse of dimensionality. We propose policies that are much simpler and easier to implement than existing ones in the literature. Our analysis revealed interesting insights into the circumstances under which perishability is negligible. This intuition not only leads to the construction of our simple policies, but also helps to establish theoretical performance bounds on the proposed policies. The bounds vanish asymptotically as the market size becomes large and clearly specify a required size for our policies to achieve any given optimality gap. Numerical studies suggest that our policies can work well even for small‐to‐medium‐sized systems and achieve comparable performance to existing heuristic polices.