Strategic rationing and freshness keeping of perishable products under transportation disruptions and demand learning

Abstract

This paper considers a retailer who sells perishable fresh products directly to customers through an online channel and encounters a transportation disruption. Products shipped during the disruption period come with an uncontrollable delivery lead time, resulting in product quality degradation. To balance the compensation price provided to customers because of quality losses, the retailer might employ freshness-keeping efforts to reduce the quality loss during transportation. Therefore, it raises several fundamental questions for the retailer in mitigating the disruption. Is it always optimal to satisfy those customers who are willing to purchase during disruption? If it is profitable to fulfill orders along with an extra delivery lead time, and with a quality loss compensation, what is the optimal freshness-keeping effort? If it is preferable to deliberately create unsatisfied demand by announcing shortages (rationing) to customers, when is the optimal time to do so? To answer these questions, we first present the dynamics of post-disruption inventory and demand, taking into account the demand learning effect facilitated from negative word-of-mouth during disruption and the demand recovery after disruption ends. Afterward, we develop a model to achieve the optimal selling strategy for maximizing post-disruption profit, identifying the joint decision of the rationing period and freshness-keeping effort. Finally, by numerical analysis, three types of selling strategies are visually provided to hedge against disruptions of different lengths.