Planning Production and Inventories in the Extended Enterprise

Abstract

Over the years, several companies have emerged as exemplary of “best practices” in supply chain management; for example, Wal-Mart is frequently cited as using unique strategies to lead its market. One significant challenge for Wal-Mart is managing inventories of products that frequently outdate : A significant portion of Wal-Mart’s product portfolio consists of perishable products such as food items (varying from fresh produce to dairy to bakery products), pharmaceuticals (e.g., drugs, vitamins, cosmetics), chemicals (e.g., household cleaning products), and cut flowers. Wal-Mart’s supply chain is not alone in its exposure to outdating risks – to better appreciate the impact of perishability and outdating in society at large, consider these figures: In a 2003 survey, overall unsalable costs at distributors to supermarkets and drug stores in consumer packaged goods alone were estimated at $2.57 billion, and 22% of these costs, over 500 million dollars, were due to expiration in only the branded segment (Grocery Manufacturers of America 2004). In the produce sector, the $1.7 billion US apple industry is estimated to lose $300 million annually to spoilage (Webb 2006). Note also that perishability and outdating are a concern not only for these consumer goods, but for industrial products (for instance, Chen (2006), mentions that adhesive materials used for plywood lose strength within 7 days of production), military ordnance, and blood – one of the most critical resources in health care supply chains. According to a nationwide survey on blood collection and utilization, 5.8% of all components of blood processed for transfusion were outdated in 2004 in the USA (AABB 2005).