A heuristic method for the inventory control of short life-cycle products

Abstract

In many manufacturing sectors, the product life cycle is becoming increasingly shorter. The direct application of standard forecasting and inventory control techniques in short life-cycle products (SLCPs) is not effective because their demand is transitory, non-stationary, and highly variable. In this paper, we develop an easy-to-implement heuristic method for the inventory control of SLCPs during their sales season. The heuristic method comprises a single-shipment submodel at the beginning of the season and a submodel that considers multiple shipments through the season. Both models work under a Vendor Managed Inventory (VMI) environment within a one-warehouse N-retailer supply chain, and attempt to minimize the total relevant cost of the system, which consists of the cost of returns, shortage costs, and fixed shipping costs. The latter costs have been barely considered in the literature for SLCPs. In the multiple-shipment submodel, we determine the shipment size by adapting the well-known Economic Order Quantity (EOQ) model. The safety stock is determined by means of the critical fractile of the newsvendor problem. Based on real sales data of a textbook publishing company, we compare the behavior of the heuristic method with the current shipping strategy of the firm. In all the test he total relevant cost of the system, which consists of the cost of returns, shortage costs, and fixed shipping costs. The latter costs have been barely considered in the literature for SLCPs. In the multiple-shipment submodel, we determine the shipment size by adapting the well-known Economic Order Quantity (EOQ) model. The safety stock is determined by means of the critical fractile of the newsvendor problem. Based on real sales data of a textbook publishing company, we compare the behavior of the heuristic method with the current shipping strategy of the firm. In all the test cases, the total relevant cost produced by the heuristic method was less than that of the current policy control of the company.