Phase-out and disposal issues of obsolete inventory items in retail stores

Logistics is the management of the flow of goods, information and other resources between the point of production and the point of consumption in order to meet the requirements of consumers. Logistics involves mainly the integration of information, transportation, and inventory.;This dissertation addresses two important issues of the multifaceted area of logistics. The first pertains to inventory management and focuses on the problems of when and by how much to discount products that are being phased-out due to non-sales or the manufacturer's / distributor's decision. The second issue tackled is the transportation aspect of the reverse logistics problem which will aim to handle the remaining products returned by the consumer to the distributor or the manufacturer.;Often times, items in retail stores are phased-out due to the introduction of replacement items from the distributor. In order to sell out these items within a certain time horizon, retail stores need to develop markdown strategies. In the first phase of this dissertation, an optimal markdown strategy is developed as a primary step using a multi-period nonlinear programming model. Based on price elasticity of demand, the model maximizes revenue from the discontinued items. The mathematical properties of the model are established and a closed form optimal solution of the model is found. Furthermore, this model is tested with real data provided by a retailer. In the second step of this phase, a linear model is developed to address the issues of when and for how long to apply pre-determined markdown strategies during the phase-out period.;The second phase of the dissertation deals with the remaining inventory, in the case that not all items are sold during the phase-out period. A mixed integer nonlinear programming model that aims to manage product returns from individual retail stores (customers) under capacity constraints and service requirements is developed. Given the complexity of this model, a linear transformation of the non-linear objective function is presented. Through computational experiments, it is shown that the linearization produces better quality solutions and enables the handling of larger-sized data problems. Closed form solutions are obtained for special structures of the problem.;Key words: product returns, closed-loop supply chains, linear transformation, phase-out, elasticity of demand, nonlinear, markdown strategies.