Backroom effect on perishable inventory management with IoT information

Abstract

We introduce an original concept of the backroom effect for perishable products when the deterioration rate in a backroom is lower than that on retail shelves. With IoT-generated real-time information about the perishable products, this phenomenon has a significant impact on joint shelf-space and inventory decisions. We define the deterioration rate gap, formulate the perceived on-shelf product freshness, and describe the freshness-dependent demand distribution, with continuous backroom-shelf replenishment. Assuming that demand depends on both perceived freshness and shelf level, we develop a decision-making model that simultaneously determines the inventory replenishment policy and the shelf space allocation for multiple items. To facilitate the solution process, we propose a hybrid solution approach by combining genetic algorithm (GA) and variable neighbourhood search (VNS). The results provide a prioritised inventory policy for item selection that incorporates the deterioration improvement. The results of the performance analysis show that a policy considering the backroom effect achieves increased profit when the backroom/shelf deterioration gap increases. The optimal solutions for the problems with large backroom/shelf gap also show that the practitioner should increase the ordering quantity, which is contradictory to the outcome of traditional models.