A Vendor-Buyer Inventory Model for Food Products Based On Shelf-Life Pricing

Abstract

Research on coordinated inventory policy for perishable items between a manufacturer and a retailer has been extensively done. The majority studies however assumed that the stored item starts to deteriorate instantaneously once its production process completed. This may be suitable for representing the characteristic of certain perishable items such as alcohol or radioactive materials. In many cases, particularly for food products such as fruits, vegetables, meat and bakeries, over the shelf-life the quantity remains constant while the value does degrade once the product is approaching its expiration date. Despite this phenomenon, less research addresses this issue, particularly in a multi-echelon supply chain system. Therefore, this research deals with inventory policy for a manufacturer-retailer system considering value degradation for food products. A mathematical model representing the system is proposed. A shelf-life based pricing function is applied to represent the value degradation of the product. The objective function is to maximise the joint profit per unit time which is achieved by optimising the length of manufacturer's production cycle (T) and the ordering frequency of finished goods (n) over the production cycle. The numerical test for the established model demonstrates that the model outperforms the existing model in terms of its potential capability of returning a significant profit improvement.