On order policies with pre-specified order schedules for a perishable product in retail.

Abstract

This paper studies a retail inventory system for a perishable product, based on a practical setting in Dutch retail. The product has a fixed shelf life of three days upon delivery at the store and product demand has a weekly pattern, which is stationary over the weeks, but varies over the days of the week. Items of varying age occur in stock. However, in retail practice, the age-distribution is often unknown, which complicates order decisions. Depending on the type of product or the size of the supermarket, replenishment cycle lengths may vary. We study a situation where a store is replenished either three or four times a week on pre-specified days. The research aim is to find practical and efficient order policies that can deal with the lack of information about the age distribution of items in stock, considering mixed LIFO and FIFO withdrawal. Reducing potential waste goes along with cost minimization, while the retailer aims at meeting a cycle service level requirement. We present four new heuristics that do not require knowledge of the inventory age-distribution. A heuristic, based on a constant order quantity for each order moment, often generates least waste and lowest costs. However, this requires a few minutes of computation time. A new base stock policy appears second best.