Patent ID: 8364553

Claim:
A method for managing inventory freshness, comprising: receiving, by at least one processor, inventory status associated with a product having freshness shelf-life, the inventory status including inventory of the product classified into age classification; receiving, by said at least one processor, stochastic demand forecast associated with the product, the stochastic demand forecast including sales forecast and associated variance for each of the age classification of the product; receiving, by said at least one processor, cost information associated with the product, the cost information including a wholesale cost, a retail sale price, a salvage price and a holding cost associated with the product; maximizing, by said at least one processor, a stochastic dynamic programming formulation that takes as input the inventory status, the stochastic demand forecast and the cost information; and determining, by said at least one processor, order quantity and depletion quantity of the product per period based on said maximizing of the stochastic dynamic programming formulation, wherein the dynamic programming formulation comprises: U t ⁡ ( x ) = max y ≥ z , x ≥ z ≥ 0 ⁢ G t ⁡ ( y , z ) , wherein G t ( y,z )=− b t E ( d t )+( p t +b t −c t 2 ) y −( p t +h t +b t −γc 1 t+1 ) E ( y−d t ) + +( c t 2 −c t 1 ) z−γc 1 t+1 E ( z−d t ) + +γEU t+1 (( y−d t ) + −( z−d t ) + ), U t+1 ( x )= c 1 T+1 x, wherein U t (x) represents total expected profit from period t to T given that on-hand inventory of aged products at beginning of period t is x units, y represents inventory order-up-to level, z represents inventory deplete-down-to level, p t represents a retail sales price at period t, c 1 t represents a salvage value of an aged product at period t, c t 2 represents a whole sale price of a fresh product at period t, c 1 t+1 represents a salvage value of an aged product at period t+1, h t represents unit holding cost in period t, b t represents the unit penalty for lost-sales in period t, d t represents stochastic demand in period t, γ is a time discount factor.