Essays on Perishable Inventory Management

My dissertation addresses a number of challenges in perishable inventory management in supply chains, providing both theoretical results and managerial insights. Essay 1: In this essay, we review the literature on supply chain management of perishable products that have a fixed or random lifetime, primarily focusing on challenges introduced by aging of such products. We start with a review of the literature on capacity and production planning. We then review the literature on inventory management at a single location. The research on single-location models provides a basis for research on multi-echelon/multi-location models, that are also reviewed in this chapter, along with transshipment and distribution models. The chapter also covers research involving modeling novelties, in terms of demand-fulfillment, information sharing, and centralized vs. decentralized planning. We provide several directions for future research by identifying the gaps in the literature and the needs of industries where perishable products are commonly stocked. Essay 2: We consider a discrete-time supply chain for perishable goods where there are separate demand streams for items of different ages. We compare two practical replenishment policies: replenishing inventory according to order-up-to level policies based on either (i) total inventory in system or (ii) new items only. Given these policies, we concentrate on four different ways of fulfilling demand: (1) demand for an item can only be satisfied by an item of that age (No-Substitution); (2) demand for new items can only be satisfied by new ones, but excess demand for old items can be satisfied by new (Downward-Substitution); (3) demand for old items can only be satisfied by old, but excess demand for new items can be satisfied by old (Upward-Substitution); (4) both downward and upward substitution are employed (Full-Substitution). We compare these substitution options analytically in terms of their infinite horizon time-average costs, providing conditions on cost parameters that determine when (if at all) one substitution option is more profitable than the others, for an item with a two-period lifetime. We also prove that inventory is “fresher” whenever downward substitution is employed. Our results are based on sample-path analysis, and as such make no assumptions on the joint distribution of demand, save for ergodicity. We complement our results with numerical experiments exploring the effect of problem parameters on performance.