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Model’’.) Thus, when the shelf-life of the items

OPHER BARON stored is ﬁnite, traditional control policies

Rotman School of Management, may not be sufﬁcient. For this reason, special

University of Toronto, Toronto, purpose models that focus on the manage-

Ontario, Canada ment of inventory of perishable items were

developed. Our purpose is to highlight the

reasons for these differences and enable fur-

ther investigation of the models developed for

perishable items by providing relevant refer-

INTRODUCTION ences. A more technical discussion of the tech-

niques employed in the analysis of perishable

This article discusses inventory management items is given in the article titled Mathe-

of perishable items, including the differences matical Models for Perishable Inventory

between inventory models that consider Control in this encyclopedia.

items’ perishability and the standard models This article continues as follows: the

that ignore this issue. We hope that this section titled ‘‘Modeling Inventory Prob-

article will help fostering the interest of lems for Perishable Items’’ highlights the

students and researchers in inventory con- differences between inventory models for

trol of perishable items, and ultimately help perishables and models that ignore per-

improving the inventory control of perishable ishability. The section titled ‘‘Taxonomy of

items in practice. Inventory Models for Perishable Items with

To emphasize the importance of appro- Inﬁnite Horizon’’ provides a taxonomy of

priately managing inventory of perishables, models for controlling inventory of perish-

note that Ref. 1 estimates the total cost of ables based on Ref. 2, and lists some of the

unsalable merchandise of suppliers to drug- basic results of such models. An important

stores and supermarkets in 2005 by $2.05 observation from this section is that effective

billion. This cost goes directly to the bottom heuristics are required for the management

line of many of these companies. Moreover, of perishable items. Thus, the section titled

higher clock speed in many industries results ‘‘Developing a Heuristic Control Policy’’

in shorter and shorter life-cycles of many demonstrates the development of such a

products. The inventory control of such prod- heuristic based on Ref. 3, and ﬁnally, the

ucts might become similar to the one of per- section titled ‘‘Future Research Directions’’

ishable items as well after some period, when lists probable directions for future research

a newer version is presented, the value of old on the management of perishable items.

items declines signiﬁcantly. One important

difference between items with short life-cycle MODELING INVENTORY PROBLEMS FOR

and perishables is that in some cases, the ﬁrm PERISHABLE ITEMS

controls the introduction of the new technol-

ogy. Still, much of the insight derived for The analysis of inventory systems is primar-

managing perishable inventory may be valid ily focused on the tactical question of which

for products with short life cycles. inventory control policies to use and the oper-

Most of the traditional inventory models ational questions of when and how much

analyzed in the literature (e.g., EOQ, (Q, r), inventory to order. By and large, these are

and (S, s) policies) assume an inﬁnite shelf- the main questions for managing the inven-

life for items (see Multiechelon Multiprod- tory of perishable items as well. This section

uct Inventory Management). (An exception reminds the reader of the assumptions used

Wiley Encyclopedia of Operations Research and Management Science, edited by James J. Cochran

Copyright © 2010 John Wiley & Sons, Inc.

1

2 MANAGING PERISHABLE INVENTORY

in modeling standard inventory systems for the inventory of good items is deteriorating

nonperished items and then lists the special with time at some rate, as in Ref. 4.

features of models for perishables. It con- The two most common models for perisha-

cludes by generalizing the newsvendor model bility are outdatedness due to reaching expiry

to consider items with ﬁnite shelf-life. In the date (e.g., food items or medicine) and sudden

process, we present relevant notation. perishability due to disaster (e.g., spoilage

because of extreme weather conditions). The

Inventory Modeling for Nonperishables perishability due to outdatedness is typically

modeled as a deterministic time to perisha-

In inventory models for nonperishables, time

bility and the perishability due to disaster is

is measured either in a discrete (i.e., periodic)

typically modeled as an exponential (or its

or continuous fashion. The choice of time

discrete counterpart, geometric) time to per-

measurement is often related to the review

ishability. This is because the memory-less

period (periodic or continuous) and to the

property of these distributions often results

model horizon, T, that may be a single period,

in more tractable models.

ﬁnite, or inﬁnite horizon. The replenishment

The treatment of lead time in the manage-

lead time, L, may be assumed to be zero,

ment of inventory for perishable items is also

deterministic, or stochastic (with or without

not trivial. One difﬁculty is that the items

order crossings). The customers arrival rate

might perish during the delivery time. This

per time period, λ, may be deterministic or

might be addressed by assuming that the sup-

stochastic, each individual’s demand, D, may

plier supplies fresh items upon their delivery

be deterministic or stochastic, and D may be

and changes their lead time accordingly. For

discrete or continuous. A typical assumption

example, when the lead time is determin-

is that the arrival process is Poisson with

istic and items’ shelf-life is exponential, we

rate λ; D = 1 (see Poisson Process and

can assume that delivered items are fresh

its Generalizations). Finally, when there

by modeling the lead time as a geometric

are no items on the shelf, that is there are

random variable.

shortages, demand is typically assumed to

In the example above, changing the lead

be backlogged or lost.

time to support the assumption that sup-

The costs considered in the management

plied items are fresh complicates the model

of standard inventory systems are per unit

because it introduces another uncertainty in

procurement cost, c; per unit selling price,

the model; namely, the corrected lead time

p; order setup cost, K ≥ 0; and holding cost

becomes uncertain. To avoid complicating the

per unit per time period, h > 0. Another cost

model, much of the literature on perishable

is that of shortages. The shortage costs can

items assumes that supplied items (after the

include a one-time cost per shortage, Kb ≥ 0

lead time) are fresh.

if shortages are backlogged, or Kl ≥ 0 when

Another complication is that when lead

shortages result in lost sales, and a cost per

times are long relative to the items’ shelf-

unit per unit time, cb ≥ 0, in cases of backlog,

lives, there might be several orders out at

or a cost per unit, cl ≥ 0, in the case of lost

the same time. Then, orders might cross

sales.

each other. This potentially affects the shelf-

life distribution of delivered items. (Order

Special Features of Models of Perishables

crossing typically increases the complexity of

In addition to the above list of characteristics, traditional models as well.)

modeling of inventory for perishable items A general difﬁculty caused by the pres-

also requires a characterization of the time ence of lead time in a stochastic environment

to perishability, Lp . This time to perishabil- is that shelf-life of items in stock depends on

ity may be either deterministic or stochastic. which batch they arrived at. Thus, the con-

Moreover, when orders arrive in batches, all troller should keep track not only of the quan-

items in a batch may share the same time to tity of the items on shelf but also the length

perishability, or each item may have its own of time different items are on the shelf; that

shelf-life. An alternative assumption is that is, their age and its distribution.

MANAGING PERISHABLE INVENTORY 3

Another challenge in the analysis of analysis of the optimal control policy for

perishable items is that items that have not perishables, it is enough that a newly arriv-

yet perished may have different remaining ing batch may have a shorter shelf-life than

shelf-life. (Either because items have a that of existing items. Moreover, in cases

unique shelf-life, or because batches with when customers may control the items’ dis-

common shelf-lives arrived in different patching they may prefer fresher items (con-

periods.) Thus, the information required to sider items such as milk), causing the actual

completely characterize the on-hand and dispatching to differ from ﬁrst-in-ﬁrst-out.

on-order inventory includes not only the

quantity of inventory but also the remaining

shelf-lives of each unit in the inventory. This Extending the Newsvendor Model

increase in information requirement makes

the analysis of multiechelon supply chains The newsvendor model discussed in the

for perishable products especially challeng- article titled Newsvendor Models in this

ing (because even for standard items, such encyclopedia is an exception in the standard

an analysis often relies on dynamic program- inventory literature, because it considers

ming and suffers from the curse of dimension- perishability. This model considers the order

ality). Therefore, some important theoretical quantity required to maximize the proﬁt

contributions developed in the analysis of over a single period when the demand over

perishable items address the information the period is uncertain. In addition to the

required to characterize the inventory level costs listed above, the newsvendor model

process. (See the discussion in the section also considers the salvage cost of perishable

titled ‘‘Models Without Order Setup Cost items cs , which can be negative or positive.

or Lead Times’’ and in the article titled The newsvendor model can also be used to

Mathematical Models for Perishable model perishable items that can be ordered

Inventory Control in this encyclopedia). only once. Now, we model the length of the

Another relevant decision in managing single period (i.e., the lifetime) as uncertain,

perishables when items of several different but there are no further procurement oppor-

ages coexist, is items dispatching to fulﬁll tunities. In this case, the uncertainty in

orders. In such cases, it might not be optimal the demand depends on both, the uncertain

to dispatch products in a ﬁrst-in-ﬁrst-out demand per time period and the uncertain

fashion. For an extreme case, consider the length of the selling season. A similar idea

following example. was ﬁrst investigated in Ref. 5, which in

contrast to the newsvendor model, allows

Example 1. A last-in-ﬁrst-out dispatching several ordering opportunities before the

policy would decrease the effect of perisha- perishability time.

bility when an item’s shelf-life follows a new To express the uncertainty in demand in

worse-than-used distribution. (Let FLp (s) these settings, we assume that the shelf-

denote the cumulative distribution function life Lp is a discrete random variable

with

a

of the shelf-life. Then, if z-transform Z Lp (z) = ∞ i=0 z Pr Lp = i and

i

1 − F Lp (s + t ) ≥ 1 − F Lp (s) 1 − F Lp (t ) pendent and identically distributed, Di , with

∀s ≥ 0, ∀t ≥ 0, a probability density function (pdf), f Di (x),

and a moment-generating function, L∗D (α) =

∞ αx i

we say that Lp has a new worse-than-used −∞ e f Di (x) dx. Then, the horizon consid-

distribution.) ered by the planner is T = Lp , the overall

demand during the period, DT , is a random

While perishable items with a new worse- sum of random variables with a moment-

than-used shelf-life are hard to ﬁnd in prac- generating function L∗D :

T

tice, this example highlights the difﬁculty of

characterizing the optimal dispatching pol-

icy. To substantially complicate the exact L∗D (α) = E L∗D (α) Lp = Z Lp L∗D (α) .

T i i

4 MANAGING PERISHABLE INVENTORY

Lp ∼ Poisson p and Di

Example 2. If Models for Perishable Inventory Control

∼ Normal μ, σ 2 and are

i.i.d, Then in this encyclopedia.

μα+(σ α)2 / 2

Z Lp (z) = ep(z−1) , L∗D (α) = e and Discrete Review Systems

i

the moment-generating function of overall

demand over the period is Models with No Fixed Order Setup Cost and

No Lead Time. The simplest model is one

p exp μα+(σ α)2 / 2 −1 in which items’ shelf-life equals the review

L∗D (α) = e . period. Then, different periods are indepen-

T

dent and the standard newsvendor solution is

optimal in each period. The second simplest

Because the moment-generating function model, in which items’ shelf-life equals two

fully characterizes the demand distribution review periods, is already much more inter-

over the products’ random shelf-life, the stan- esting. This model was pioneered in Ref. 6,

dard solution of the newsvendor model can where it was shown that the optimal control

be implemented to maximize the proﬁt even policy is state dependent.

when the valuable shelf-life of the items is That the optimal control policy is state

uncertain. dependent, is somewhat surprising, because

the optimality of the base stock control policy

is easily established in discrete review mod-

TAXONOMY OF INVENTORY MODELS FOR els for nonperishables without order setup

PERISHABLE ITEMS WITH INFINITE cost. Moreover, this result is also important

HORIZON because it implies that for models in this cate-

gory, the simple base stock-level control is not

As shown above, the newsvendor model optimal, in sharp contrast to the optimality

is useful in the inventory management of of this control for nonperishables.

perishable items that can only be ordered Thus, for perishable items, the opti-

once. However, many perishable items such mal inventory control requires solving a

as food and medicines are consumed over dynamic programming problem. The dif-

a much longer horizon; then a single order ﬁculty in ﬁnding and implementing the

is not practical. Finite horizon models were optimal state-dependent controls motivated

addressed in the literature almost solely in researchers to search for effective heuristics.

the discrete review settings. In contrast, For example, Broadheim et al. [7] suggested

inﬁnite horizon models were considered in a heuristic that is based only on the age

both discrete and continuous review settings. of the newest item in the system and the

Below, we describe the primary models, simulation-based study in Ref. 8 considered

assumptions, and results in the inventory several heuristics including one that keeps

literature on perishable items. We follow the the total number of items in the system

classiﬁcation of Ref. 2 in the section titled ﬁxed, ignoring their ages.

‘‘Taxonomy of Inventory Models for Perish-

able Items with Inﬁnite Horizon’’ because it Models with Fixed Ordering Cost but no

is both thorough and recent. The interested Lead Time. The research on this category

reader is encouraged to read Ref. 2. was pioneered in Ref. 9, which highlights

The inﬁnite horizon models for perishables the complexity of the optimal control struc-

include a cost, cp , per perished item. This cost ture for these models and suggests heuristic

replaces the salvage value of perished items for control of the system based on the (S, s)

in the newsvendor model. It is also possible model.

to include a ﬁxed cost, Kp , in cases where A nice observation for this model of the

batches of items perish; however, most of the Poisson demand with backlogs case is that

models do not include the latter cost. the optimal reorder level is always at or below

A more detailed discussion of the state- −1. This result, which was established in

of-the-art results for each of these models Ref. 10, echoes the one in Ref. 11 for the

is given in the article titled Mathematical continuous review system. The proof follows

MANAGING PERISHABLE INVENTORY 5

points would increase holding cost without

Models without Order Setup Cost or Lead

reducing the backlog. (This result also holds

Times. This category was motivated to model

in the case where customer’s arrival process

blood banks. It was originated by Graves [14],

is Poisson and each customer requests some

integer quantity of the product.) who assumed that the items are continuously

produced, perish after a deterministic time,

Models with Lead Time. The inclusion of and that demand follows a compound Pois-

positive lead time leads to much more com- son process with either a single unit or an

plicated models, as the number of states exponential demand at each arrival. A large

required for the dynamic program increases. body of work within this category was done by

With lead time, one needs to also keep track Perry et al. in Ref. 15 and references therein;

of the age of ordered items. This model is con- thus Karasesman et al. [2] named it the Perry

sidered in Ref. 12, where methods to solve it model.

are suggested. Recently, Berk [13] analyzed An interesting observation that is used in

the (Q,r) periodic review inventory model for the analysis of the Perry model is that its per-

perishables with lead time by using the effec- formance can often be characterized based on

tive shelf-life distribution and assuming lost knowledge of the virtual death process, that

sales. is, the time until the next perishability [16].

The main assumption made in many of the

Discussion. The assumption of zero lead

models within this category is that good items

time in the case of a discrete review system

arrive one by one independently of the deci-

is often justiﬁed if the lead time is shorter

sion making. Thus, in contrast to standard

than the review period. Therefore, the analy-

inventory models, the controller does not

sis of such models (with periodic review and

decide on when and how much to order. Still,

no lead time) is valuable. The zero lead time

the controller might affect the arrival rate of

assumption is not as meaningful for contin-

good items by advertising, for example.

uous review models or when the lead time is

Because of this lack of control on the input,

long and makes reviewing the items at such

intervals too expensive. most work on the Perry model focused on

From an analysis point of view, treating performance analysis rather than on ﬁnding

perishable items requires consideration optimal controls.

of the age distribution of the on-hand

inventory in both ordering and dispatching

Models without Order Setup Cost but

of perishable items. Dispatching is also

important because, typically (and in contrast with Positive Lead Time. The ﬁrst work on

to Example 1), the value of older items continuous review models without setup

in stock is lower than that of the newer cost but with lead time is given in Ref. 17

ones. The challenges in both ordering and where, as in many subsequent works, the

dispatching of perishables causes the tra- performance of an (S − 1, S) control policy

ditional optimal policies for nonperishable is investigated. However the optimality of

items to be suboptimal for perishables. this control policy is not established, even

It turns out that the optimal control when time to perishability and interarrival

policies for perishable items are fairly hard times are exponential. In fact, in view of

to characterize. This difﬁculty encouraged the fact that base stock is not the optimal

researchers to develop effective heuristics policy in the corresponding discrete review

for the periodic control of perishable items in model, even in the absence of lead time, this

the absence of lead time. However, no such control policy is probably not optimal for the

heuristics were developed for models with continuous review models either. While some

long lead time (Williams and Patuwo [12] study of problems with ﬁxed lead time and

give an exact analysis of several relevant time to perishability has been pursued [18],

cases and suggest guidelines for developing the theoretical results about these applicable

such heuristics). models are far from being complete.

6 MANAGING PERISHABLE INVENTORY

Models with Order Setup Cost. Models with DEVELOPING A HEURISTIC CONTROL

order setup cost can be portioned into ones POLICY

with a ﬁxed or variable order size, corre-

sponding to the (Q,R) or the (s,S) standard As discussed above, there is a need for

inventory models. Both types of models can developing effective control policies for both,

be analyzed as cost minimization problems, continuous and discrete review models of

possibly subject to some service level con- perishable items. Below, we discuss such

straint. a heuristic based on Ref. 3. Consider a

For ﬁxed batch size problems, two policies continuous review model with no lead time,

were considered: the standard (Q, R) and the where the customers arrival process is

(Q, R, T) policy, where orders of a batch are Poisson with rate λ and each customer

triggered by either the time passed (since the requests a continuous random quantity D of

inventory level was Q) being T, or by the items with a mean demand size of E (D). The

inventory level falling below R [19]. costs considered are the order setup cost,

The vast majority of work allowing for K, holding cost per item per time period,

variable order size assumes no lead time, h, and cost of perishable items, cp . Let us

as in Ref. 11. In Ref. 11, it is established focus on an (S, s) control policy and allow no

that with Poisson demand the (S,s) is the backlog, which is legitimate due to the zero

optimal policy when shortages are either lead time assumption. Thus, s = 0 is optimal

backlogged or result in lost sales, and also and due to the Poisson arrival process, the

that s < −1 or s = 0 for these models, respec- times where the inventory level is raised

tively. (The insight behind the proof on the to S are renewal epochs (see Deﬁnition

optimal reorder point is similar to the one and Examples of Renewal Processes,

for the corresponding discrete review model properties of renewal processes)

discussed in the section titled ‘‘Models with In the standard (S, 0) model without per-

Fixed Ordering Cost but no Lead Time.’’) ishable items, the end of the inventory cycle,

Recently, Gurlur and Ozkaya [20] consid- denoted by TS is caused only due to the

ered a zero lead time with backlog (s, S) policy arrival of a demand. Of course, TS is a ran-

for perishables. They used sums and inte- dom variable that depends on S and on the

grations of relevant distribution functions to demand arrival process. But when items are

express the expected cost rate function for perishable, cycles can also end due to per-

their model and developed a heuristic for the ishability, at time Lp , which is the random

positive lead time case. variable describing the time to perishability

of a new batch. To emphasize that the model

Discussion. To summarize, stochastic focuses on perishable items, we denote the

analysis is the main tool used in the inves- time to end the cycle by τ = min TS , Lp and

tigation of continuous review models for the corresponding control policy by (S, τ ), as

perishable items. This analysis is not trivial in Ref. 3.

and the characterization of the optimal Figure 1 shows a sample path of inventory

control policies is more complicated than in over more than two inventory cycles. The

the periodic review models. Therefore, there ﬁrst cycle ends due to the demand, as in a

is a need to ﬁnd effective control policies standard (S, 0) model; then τ = T S1 ≤ L p1 .

for these models as well, especially in the The second cycle ends due to perishability;

presence of lead time. then τ = Lp2 < TS2 .

There is still a place for developing efﬁ- Let V (t) denote the inventory level at

cient heuristics for the control of continuous time t ∈ [0,τ ) from the beginning of the cycle.

review policies for perishables with lead time. Thus, V = {V(t) : t ≥ 0} is a regenerative pro-

Both the heuristic reported in Ref. 20 and cess such that V (0) = S. We let V(τ ) denote

the one for the no lead time case from Ref. 3, the inventory level at the end of the cycle and

which is also reproduced in the next section, use E as the expected value operator (both

seem good starting points for ﬁnding such E(V) and E(V(τ )) are well deﬁned because V

heuristics. is a regenerative process). Then, the long-run

MANAGING PERISHABLE INVENTORY 7

Order times

Interarrival times

A ~exp(λ)

1

S

Demand X1

A2

V(t)

X2

A3

X3

t

Time to perishability Lp1

Lp2 Lp3

t λ E(D) and, as in the EOQ model, the aver-

K + cp E V(τ ) I{τ < Ts } age inventory resulting from an inventory

C(S) =

E(τ ) triangle of height Y is Y/2, we have

+ h E (V), (1)

S/(λE(D))

tλE (D)

E (V) = S − tλE (D) +

where I{·} is the indicator function with a 0 2

value 1, if the event {·} occurs and 0 otherwise.

S S

To ﬁnd a heuristic control policy, we fLp (t) dt + Pr Lp > (3)

2 λE (D)

replace the stochastic demand assumption

with a deterministic demand with a rate

and

λE (D). Then, starting at the reorder level S

for any time t before the end of the cycle, we

S/ (λE(D))

have E V(τ ) I{τ < TS } = (S − t λ E (D))

0

cycle its length is TS = S/(λE (D)). Letting Remark. This heuristic assumes a contin-

f Lp (t) denote the pdf of Lp , the expected cycle uous and deterministic demand process, thus

length is given by new demand arrives immediately after an old

E (τ ) = E min Lp , TS batch perishes. In practice, when there is no

S/(λE(D)) lead time, ordering the next batch after items

= t f Lp (t) dt perish can be postponed until the next cus-

0 tomer’s arrival. That is, the order at the end

S S of the second cycle in Fig. 1 can be postponed

+ Pr Lp > . (2) until the ﬁrst arrival in the third cycle. Such

λ E (D) λ E (D)

8 MANAGING PERISHABLE INVENTORY

postponement would increase E (τ ) and can (around 2% on average). Thus, Baron et al.

be incorporated into the heuristic by adding [3] suggested that this heuristic be used for

the expected time to an arrival to the expected cases where S∗ cannot be found.

cycle length whenever cycles end due to per-

ishability. In contrast, when the demand size

FUTURE RESEARCH DIRECTIONS

is continuous, it is likely that when the cycle

ends due to demand there is some demand

Below, we discuss several research direc-

that should be satisﬁed from the next batch. tions and explain their importance. Many

Then when no backlog is allowed, a similar of these extensions have attracted signiﬁcant

postponement is not feasible for cycles that research for standard items, but in our opin-

end due to demand. In any case, postponing ion, they are not addressed well enough for

orders when cycles end due to perishability perishable items.

might not be beneﬁcial when lead time is pos- The most important research direction

itive. Thus, in the example given below, we for managing inventory of perishables is to

ignore such postponement and use E (τ ) as develop effective heuristics for inventory con-

given in Equation (2). trol of such items. Some heuristic control

policies were developed earlier, such as by

Nahmias [21], who discusses heuristics for

Example 3. The heuristic when Lp ∼ the deterministic shelf-life case. However,

exp (ξ ): Assuming Lp ∼ exp (ξ ) using Equat- developing effective heuristics for additional

ions (2)–(4), we get the approximated control settings is still required. Such settings should

problem: include both continuous and periodic review

systems and focus on cases with positive lead

⎛

S

⎞

−ξ times. A closely related research direction

λE(D) 1−e λE(D)

⎜ ⎟ is to provide theoretical guarantees on the

K + π ⎝S − ξ ⎠

performance of different heuristics, similar

min Ch (S) = to the established efﬁciency of power of two

S −ξ S

1−e λE(D) policies for standard inventory items [22].

ξ The standard assumption in the literature

⎛ ⎞

S

−ξ λE(D) on continuously reviewed perishable items is

λE (D) 1 − e

⎜ ⎟ that the planning horizon is inﬁnite. Investi-

+ h⎜

⎝S −

⎟,

⎠ gating the inventory control of perishables for

2ξ

ﬁnite horizons in such settings also deserves

more research attention.

(5) Four other issues that have garnered a

lot of attention for standard inventory items

while in general there is no closed form are their management (i) in multiechelon

solution to problem (5), it is easily solved settings, (ii) when aiming to coordinate

numerically. the supply chain, (iii) for multiple items,

and (iv) in the presence of competition (see

This heuristic, of solving Equation (5) was Business Process Outsourcing multiech-

investigated in Ref. 3, for cases in which the elon, multiple items and Supply Chain

time to perishability is exponential or deter- Coordination). An important feature

ministic, arrivals follow a Poisson process, in investigating these issues is internal

and customers’ demand is either a unit or transshipment. Many models address-

exponentially distributed. For these cases, ing nonperishable items ignore internal

Baron et al. [3] expressed the optimal order shipments, because the cost of internal

up to level, that is, the one that minimizes transshipments might offset their beneﬁt.

Equation (1) denoted by S∗ , and compared it However, because transshipments of per-

to the order up to the level based on solv- ishable items may reduce the proportion of

ing Equation (5), SH . For these cases, the perished items, the value of internal trans-

cost error of the heuristic is relatively small shipments for perishable items is higher

MANAGING PERISHABLE INVENTORY 9

than for nonperishables. Thus, allowing subject to service level constraints even for a

internal transshipments is preferable in single customer type has won little attention.

models that consider multiple sites. Such constraints could be quite speciﬁc in

Initial steps at investigating the above deﬁning appropriate service levels in relation

issues for supply chains of perishable items to the residual life of items sold. Customers

were taken (Section 4 in Ref. 2). For example, might not be satisﬁed with only a high

for the supply of blood in multiechelon on-shelf availability, but may also demand

settings (Ref. 23 and references within), that available items are fresh enough.

consider both, a rotation (or recycling) policy Moreover, in some cases different customer

and a retention one. In a rotation system at types prefer different levels of freshness

the end of each period (e.g., day) the supplier that require different storage processes. For

gathers all unsold (and not yet perished) example, the shelf-life of tomatoes is longer

items from the retailers and then supply if they are kept on the vine, refrigerated

them at the beginning of the next period; in (that may also reduce their ﬂavor), or turned

a retention system, supplied items are left into a tomato paste, tomato juice, or ketchup.

with the retailers until they are demanded or Thus, it is likely that formulating problems

perished. However, the literature addressing with different customer types would be very

issues (i)–(iv) for perishables typically application dependent. Still, in view of the

considered fairly restrictive settings. importance of these applications, for example

Therefore, there is room for addressing these in the health-care industry, this is a topic

issues and developing effective management deserving further research.

policies for managing the ﬂow and allocation The above discussion of different service

of perishable items in supply chains. levels and storage requirements for perish-

Note that to properly address these able items raises another question; namely,

issues, investigation of the strategic plan- the effective analysis of the logistics required

ning of supply-chain networks is required for the delivery of perishable items. Logistics

for perishable items. Appropriate models planning for perishable items involves capac-

for supply-chain networks require as input, ity, storage, production, and transportation

the inventory control policy used and decisions as well as their effect on items’

their performances (see Supply Chain shelf-life. For example, some fruits are deliv-

Coordination). For example, locating ered to North America in ships, with part

warehouses and distribution centers should of their ripening occurring during this long

consider the costs implied by different and often uncertain transportation window.

supply-chain conﬁgurations. However, in the Once ripened, such fruits are often stored

absence of efﬁcient methods to manage the at cold temperatures to increase their shelf-

inventory within the supply chain and to life. Thus, managing the logistics process

estimate the implied inventory-related costs, required to bring valuable items to ﬁnal cus-

designing the network of the supply chain tomers is not simple, and deserves further

might be of limited value. attention. Again, such research is likely to be

Another model that is well established application dependent.

for standard items is joint manufacturing, An important issue that is unique for per-

storing, and allocation of products for differ- ishable items is the dispatching policy which

ent customer types. This is also relevant for may be complex even for a single customer

perishable items. An example is the choice type. In addition to the complexity high-

made at a central depot that serves several lighted by Example 1, the dispatching policy

different retailers with different importance. can also affect the demand. For example, con-

Then, an allocation of items may need to sumers of food items such as milk, often check

consider performance measures as seen by the ‘‘best before’’ date of items on the shelf.

the different customer types. Such measures Thus, demand for a speciﬁc item depends not

of service levels could be on-stock availability only on its availability on the shelf and its

of ‘‘fresh enough’’ items, ﬁll rates, and so on. age, but also on the age and shelf availabil-

In fact, inventory control of perishable items ity of items of different ages. That is, there

10 MANAGING PERISHABLE INVENTORY

are substitutability effects among items that periods subject to stochastic demand. Nav Res

differ by age. In addition, in this setting, the Logist Q 1973;20:207–229.

controller can only affect rather than dictate 7. Broadheim E, Derman C, Prastacos GP. On

the dispatching policy. This is a mirror prob- the evaluation of a class of inventory policies

lem to the models in the section titled ‘‘Models for perishable products such as blood. Manag

Without Order Setup Cost or Lead Times,’’ Sci 1975;22:1320–1325.

where the controller can only affect rather 8. Nahmias S. A comparison of alternative

than dictate the arrival of new items. Again, approximations for ordering perishable inven-

tory. INFOR 1975;13:175–184.

initial works on this subject exist (Section 5.2

of Ref. 2), but there is still plenty of opportu- 9. Nahmias S. The ﬁxed charged perisha-

ble inventory problem. Oper Res 1978;26:

nity for research in more realistic settings.

441–481.

As the last but not the least research

10. Lian Z, Liu L. A discrete-time model for

direction, we list the following simplifying

perishable inventory systems. Ann Oper Res

assumptions that are often made in works

1999;87:103–116.

on perishable items. Most of the references

11. Weiss H. Optimal ordering policies for con-

above assume that (i) demand is known (in

tinuous review perishable inventory models.

case of stochastic demand its distribution Oper Res 1980;28:365–374.

is known), (ii) there is no seasonality, (iii)

12. Williams CL, Patuwo BE. A perishable inven-

demand is independent of pricing, shelf tory model with positive order lead times.

space allocation, and inventory level, (iv) Euro J Oper Res 1999;116:352–373.

order yield is perfect, and (v) there is 13. Berk E, Gurler U. Analysis of the (Q,

no substitutability of items (both within r) inventory model for perishables with

items of different ages and among different positive lead times and lost sales. Oper Res

products). For nonperishable items, all of 2008;56(5):1238–1246.

these assumptions have been relaxed to some 14. Graves S. The application of queuing theory

extent. However, the vast majority of papers to continuous perishable inventory system.

on managing inventory of perishables make Manag Sci 1982;28:400–406.

these assumptions. (Several initial attempts 15. Nahmias S, Perry D, Stadje W. Actuarial valu-

at relaxing some of these assumptions are ation of perishable inventory systems. Probab

referenced in Section 5 of Ref. 2.) Eng Infor Sci 2004;18:219–232.

16. Kaspi H, Perry D. Inventory system of

perishable commodities. Adv Appl Probab

REFERENCES 1983;15:674–685.

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Unsaleables benchmark report. 2006. riorating items with exponential lead time.

2. Karaesmen I, Scheller-Wolf A, Deniz B. Calcutta Stat Assoc Bull 1989;38:83–91.

Managing Perishable and Aging Invento- 18. Perry D, Posner M. An (S-1;S) inventory sys-

ries: Review and Future Research Directions. tem with ﬁxed shelf-life and constant lead

Kempf K, Keskinocak A, Uzsoy P, editors. times. Oper Res 1998;46:65–71.

Handbook of Production Planning. Kluwer 19. Tekin E, Gurler U, Berk E. Age based vs stock-

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