Single Stage Heuristic for Perishable Inventory Control in Two-Echelon Supply Chains
Ferguson, Mark E.
Lystad, Erik D.
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We study the problem of determining stocking levels for fixed-life perishable products in a two-echelon supply chain. We consider both serial chains and distribution networks consisting of a warehouse and n non-identical retail locations. Inventory retains constant utility throughout its lifetime, lead-times are deterministic, there are no fixed ordering costs, and unmet demand is backlogged. Although an extensive literature exists for the nonperishable product case, the consideration of perishability significantly complicates the problem. For instance, a major complication is the need to track the age of inventory as well as its position in the supply chain, adding a dimension to the already burdensome state space of dynamic programming formulations. We provide accurate single-stage heuristics for determining the stocking levels for two-echelon supply chains. We use these heuristics to develop insight and intuition into the proper management of perishable inventory. Our heuristics are robust, easy-to-use, and simple enough to be implemented using spreadsheet applications.