Development of an integrated production-inventory model for food products considering exponential perceived value loss

Abstract

Studies on deteriorating inventory models have been done extensively from the simple EOQ to more complex joint economic lot size (JELS). The majority of studies in this area assume the quantity depletion of deteriorating inventories. In most food products, however, it is quality or value that losses over time while the quantity remains the same during a certain period. Regarding packaged food products whose expiration dates are stamped on their label, the products' value is perceived by customers by examining their remaining life time. The customers' willingness to pay for a product declines when they realize that the product approaches its expiration dates. This phenomenon is called perceived value loss. The losses can be linear or exponential depending on products' characteristics. In this study, the exponential perceived value loss is considered when developing an integrated production-inventory model in a single vendor single buyer supply chain system. The numerical test shows that the performance of the proposed model in terms of the total profit of the joint system is 2.08% higher compared to the benchmark model.