Optimal lot-sizing and shipment decisions in a three-echelon supply chain for growing items with inventory level- and expiration date-dependent demand

Abstract

Expiration dates have a significant effect on customers’ purchasing behaviour of perishable food products. Furthermore, marketing theory has shown that increasing the levels of inventory on display may stimulate customer demand. Moreover, the primary source of a vast majority of perishable food products is growing items such as livestock and crops. Before these growing items can be consumed, they are often processed into a form that is safe for human consumption. With all these factors in mind, an integrated model for inventory control in a three-echelon supply chain for growing items, with farming, processing and retail echelons, is formulated. Customer demand at the retail end of the supply chain is assumed to be dependent on the inventory level and the expiration date. The effectiveness of a profit enhancement mechanism which relaxes the traditional zero-ending inventory policy at the retail end of the supply chain is investigated. In this situation, it is assumed that the retailer always keeps on-hand inventory and starts a new replenishment cycle once the inventory level drops to a certain minimum value. The retailer has a clearance sale at the end of the cycle to clear out the ending on-hand inventory. In terms of profitability enhancement, this policy performs better than the traditional zero-ending inventory policy.