Shelf-life extension under implementation costs

The strategy of shelf-life extension has the potential to yield environmental benefits and monetary savings associated with decreased waste. In particular, shelf-life extension may reduce shortages of crucial commodities, such as drugs and food, in times of crisis. We develop a demand model for a perishable product that considers not only the multiplicative effect of price and time until expiration, but also a parameter representing the degree of shelf-life extension. Since there are costs associated with extending the shelf-life of a perishable product (i.e., investing in technologies), which might be incurred by the retailer, our model, aside from deriving the optimal pricing and ordering policy, determines whether and for how long the shelf-life of a product should be extended assuming that the technology is available. Thus the three decision variables in our model are price, extension duration ratio (the extension period divided by the original shelf-life), and replenishment cycle length. We demonstrate the applicability of the proposed model and its significance. In particular, we show that increasing the shelf-life of a product has the potential to create additional demand, although the demand only increases up to a particular value of the extension ratio, after which it decreases. We argue that the application of the model to decision-making regarding shelf-life extension creates a win–win situation for the retailer and society; the retailer increases her profit as a result of shelf-life extension, while society achieves social welfare gains by consuming a product with longer expiration than would otherwise be possible.