The Supply Chain Design for Perishable Food with Stochastic Demand

Abstract

It has been a challenging task to manage perishable food supply chains because of the perishable product's short lifetime, the possible spoilage of the product due to its deterioration nature, and the retail demand uncertainty. All of these factors can lead to a significant amount of shortage of food items and a substantial retail loss. The recent development of tracing and tracking technologies, which facilitate effective monitoring of the inventory level and product quality continuously, can greatly improve the performance of food supply chain and reduce spoilage waste. Motivated by this recent technological advancement, our research aims to investigate the joint decision of pricing strategy, shelf space allocation, and replenishment policy in a single-item food supply chain setting, where our goal is to maximize the retailer's total expected profit subject to stochastic retail demand. We prove the existence of optimality for the design of the perishable food supply chain. We then extend the single-item supply chain problem to a multi-item setting and propose an easy-to-implement searching algorithm to produce the optimal allocation of shelf space among these items for practical implementation. Finally, we provide numerical examples to demonstrate the effectiveness of our solution.

Effective Pricing of Perishables for a More Sustainable Retail Food Market

“…Numerous earlier studies have focused on showing the benefits of implementing dynamic pricing for perishables [9][10][11][12][13][14][15][16][17][18][19][20][21][22]. Past studies using a deterministic simulation showed that inventory aging of perishable foods can be reduced by applying various dynamic pricing strategies [25].…”

“…Recent studies have focused on finding the optimal supply chain design for perishable foods that optimizes inventory levels and pricing. For example, Yang et al [20], Xiao and Yang [21] developed models for the joint decisions of pricing, shelf space allocation, and replenishment strategies for perishables to maximize retailers' profitability. Yang et al [22] developed a supply chain model that considers pricing and temperature controls for perishable foods.…”

“…Studies have also considered strategic consumer demand to develop an optimal dynamic pricing for perishable products [13][14][15][16][17]. The models developed in these studies are focused on general perishable products, and earlier studies have also focused on developing pricing and inventory models for perishable foods [18][19][20][21][22][23][24][25][26]. These studies used stochastic consumer demands such as myopic, strategic, and price-dependent demand assumptions, which have not considered the realistic situation when consumers actually purchase perishable foods.…”

Effects of Consumer Demand, Product Lifetime, and Substitution Ratio on Perishable Inventory Management

“…Therefore, it is beneficial to understand the effects of consumer demand on inventory management for suppliers and retailers [19]. Besides the economics benefits, this knowledge is crucial to the sustainability of the system as unsalable products cause significant environmental impacts [6].…”

“…This research relates to a rich literature stream regarding the perishable supply chain where Yang et al [6] highlighted that it is a challenging task to manage a perishable supply chain due to uncertainty in product lifetime and customer demand. This research contributes to the literature on perishable supply chain by considering a two-echelon model with three perishable products.…”