Management of Perishables: Replenishment
and Substitution
Borga Deniz,
Alan Scheller-Wolf,
Itır Karaesmen, University of Maryland (itir@umd.edu)
We
study a supply chain model for perishable goods where there are separate demand
streams for items of different ages. We compare four different substitution
policies (Downward, Upward, Full and No-substitution policies) analytically in
terms of the infinite horizon expected costs, providing conditions on cost
parameters that determine when one substitution option is better than the
others, for an item with a two-period lifetime. Our results are based on
sample-path analysis, and we make no restrictive assumptions on demand process.
We propose two practical inventory policies: replenishing inventory according
to order-up-to level policies based on either (i) total inventory in system or
(ii) new items in stock. We compare these policies with the optimal state
dependent policy. We explore some structural properties of the policies as well
as their sensitiveness to lead times.