Supply Planning and Inventory Control of Perishable Products Under Lead-Time Uncertainty and Service Level Constraints

Abstract

There is an increasing interest in academic research studying supply planning and inventory control of perishable products, i.e., of products that have a finite shelf life and/or face physical quality decay. The majority of papers in this field consider various stochastic lifetime and demand processes; however, they usually consider a constant order lead-time. So far, very little research integrates lead-time uncertainty into supply planning and inventory control models for perishable products. In this paper, we develop and examine a dynamic inventory control policy for a perishable product with a finite shelf life considering an uncertain replenishment lead-time and a service level constraint that is targeted every period. This dynamic inventory control policy determines the optimal replenishment quantity based on the actual composition of the inventory level into different age categories (remaining shelf lives), the demand forecast during the uncertain lead-time, and the inventory issuing policy, i.e., the order in which the different age-categories are issued from inventory. We consider a B2B environment in which inventory can be issued in a first-in-first-out (FIFO) order and further consider a non-stationary demand process over time. Besides providing structural properties for the optimal replenishment quantity under lead-time uncertainty based on analytical results, we further show the impact of not considering lead-time uncertainty in the decision-making process on achieved service levels and waste rates using a simulation-based optimization technique.