Expiration dates and order quantities for perishables
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2017 Elsevier B.V. We address the problem of how to set expiration dates for perishable products in the context of a retailer that sells a random lifetime product under periodic review. Although the lifetime is random, the retailer, in addition to deciding when and how much to order, must also determine an expiration date that corresponds to the maximum number of periods that inventory may remain available for sale before it must be discarded. Unlike other models of perishable inventory, but similar to real-world processes, it is possible to unknowingly sell products that have reached the limit of their retail shelf life, or to discard products that are still good for sale. As a result, retailers must balance hazard costs and perishing costs by setting a remaining shelf life that provides customers with a reasonable time for storage at home before the product actually spoils. We formulate the problem as a Markov Decision Process and also introduce two heuristic policies for the computation of order quantities and expiration dates that are of more practical relevance. We conduct an extensive simulation study, focusing on fresh packaged tomatoes as an illustrative example. Through this study, we evaluate the sensitivity of the computed expiration dates relative to the problem parameters and provide managerial insight into the role of expiration date setting for inventory control.