Perishable Product's Ordering Optimization Decision with Consideration of the Other Surplus Alternative

A retailer deals with two perishable products which can substitute each other, when he prepares to order one, the other would have some surplus. We construct a Nested Newsboy model on the condition limited by the surplus quantity of the substitution. The model is a two-stage optimization problem. In order to gain the analytical solution, we first define the border of ordering quantity by deducing and proving. Then, according to the optimal results of the first stage, we divide the possible range of the optimal order quantity into several sections. At last we get the retailer's ordering policy about the different market condition basing on the optimal analysis of the above decisions. If the retailer considers the alternative of surplus, he can reduce the lead-time order quantity, the order budget, and raise expected gains. Furthermore, with the probability of the low replacement cost increasing, the retailer will reduce the lead-time order quantity in order to make the greatest use of the excessive of the other alternative product to meet market demand.