Modeling the influence of multiple expiration dates on revenue generation in the supply chain

Abstract

PurposeInventory control models for perishable products have primarily used a FIFO issuing policy with the objective of minimizing the number of outdated units. This paper aims to develop a model to evaluate an issuing policy for a single product with a fixed shelf life in single echelon inventory system. The issuing policy considers the remaining shelf life of the in‐stock inventory and the expected time that the product will spend in inventory as the decision driver.Design/methodology/approachThe model developed has an objective of maximizing expected revenue over time with a budget constraint. A heuristic algorithm is proposed to iteratively arrive at the best solution to the formulation. The heuristic is tested by employing a simulation model of the system.FindingsThe proposed heuristic is tested against both the FIFO and the random allocation approaches and found to be superior for all the in‐stock with remaining shelf life distribution means of above 40 percent. No significant performance differences were found for the three approaches for remaining shelf life distribution.Research limitations/implicationsThe research is focused on a single product with multiple expiration dates and further research is necessary to determine the best policies for the multi‐product multi‐expiration date environment where the items are substitutable..Practical implicationsRetailers stock items with multiple expiration dates. The customer, for obvious reasons, is more likely to choose the item with the longer remaining shelf life. Therefore, the supply to the retailer's shelves and issuing policies for making available the particular items to the customers affect product outdating and related costs. Revenues will be affected by the extent to which more can be charged for items with a longer remaining shelf life or by the impact of the remaining shelf life on demand. This paper provides for a practical approach to that end.Originality/valueThe proposed issuing policy has not been tested before and thus makes a contribution to the body of knowledge. The flexibility of using different values for acquisition costs, selling prices, salvage value and penalty functions is a particular strength of the proposed model. Moreover, its potential application to inventory control problems for a wide range of perishable products is substantial.