A note on inventory policies for products with residual-life-dependent demand

•We study an inventory model for perishable products with age-dependent demand rate.•We assume a deterministic and concave decreasing demand structure.•We build on the EOQ model and solve the problem in a profit-maximizing framework.•In the linear demand case, we characterize the optimal policy.•In the general demand case, we propose an adaptive heuristic policy which converges to a feasible solution with good performance. We study inventory ordering policies for products that attract demand at a decreasing rate as they approach the end of their usable lifetime, for example, perishable items nearing expiration. We consider the “product freshness’’, or equivalently, the time until expiration (“residual life”) as a factor influencing the customer demand. In a profit-maximizing framework, we build on the Economic Order Quantity (EOQ) replenishment model and formulate the inventory ordering problem using a deterministic demand function that is concave decreasing in the the age of the product. We provide analytical results on the optimal ordering policy, including an explicit characterization of the decisions in the linear-demand case, and we develop an easy-to-implement adaptive heuristic policy for the general case. Numerical examples show that the optimal policy generates significant profit gains compared to the traditional cost-based policies and the adaptive heuristic policy performs highly satisfactorily in the tested instances.