Simulation to Improve Management of Perishable and Substitutable Inventory

Simulation to Improve Management of Perishable and Substitutable Inventory

Duong Nguyen Khanh Linh (Auckland University of Technology, New Zealand) and Lincoln C. Wood (Auckland University of Technology, New Zealand & School of Information Systems, Curtin University, Bentley, Australia)
DOI: 10.4018/978-1-4666-5888-2.ch087

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In general, there are four types of perishable products: food items (e.g., meat, vegetables, dairy products, and beverages), medical/pharmaceuticals (e.g., vaccines, blood, and drugs), plants, and industrial/other (e.g., paint and chemicals). Typically, a hierarchy of product group is used and within each of these groups are categories. Furthermore, categories can be defined into subcategories. Finally, many product variants are divided within each of these subcategories. For example, milk products can be divided into powdered milk or ready-to-drink milk products. Ready-to-drink milk products can be further divided into yoghurt or liquid drinks. Yoghurt can be divided by favors and then by sizes (e.g., plain, peach, or strawberry flavors and sizes such as 180mL or 110mL).

Key Terms in this Chapter

Periodic Review System: A classic inventory system where the inventory level is reviewed at a regular time intervals (e.g., once a week), whereupon the decision is made as to how much to order to bring the inventory level up to a given amount.

Continuous Review System: A system where the stock level of each product is calculated each time a product is moves in or moves out the systems in real-time. This triggers an order for more stock when the inventory level falls below a particular re-order point.

Simulation: A method to imitate the operations in real world system over time. The simulation requires a model that closely represents or replicates key characteristics of physical system.

Optimization: A procedure to make a system or a process as effective as possible. Optimization usually requires mathematical techniques to find the best possible solutions to a problem. In inventory management, optimization often relates to calculating how much inventory to hold (to meet customer demand) while holding as little as possible (to minimize the costs of holding inventory).

Perishable Product: A product with short shelf life or one that easily deteriorates. These items include fresh foods, dairy products, and pharmaceuticals. This period of shelf life complicates the inventory management as they must be processed and move through the supply chain for sale to customers before they perish and lose either part of their value or their entire value.

Radio Frequency Identification (RFID): A system using radio frequencies to transfer data from tags on items to readers that are connected to other computer systems. This allows automatic identification and tracking products.

Product Substitution: A possibility when considering management of multiple products. It is a case that a customer will substitute their preferred product with another with similar characteristics. This is particularly true with ‘commodity’ style products (e.g., milk, where two brands may have very similar characteristics of milk product).

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