Inventory management of two stage perishable goods

Abstract

Inventory Management is a crucial aspect of every organization as even a slight variation in the inventory levels might have impact on financials, health and business opportunities of the firm. It helps us meet variation in production demand, cater to cyclical and seasonal Demand, obtain economies of scale in procurement, take advantage of price increase and quantity discounts, reduce transit Cost and transit times. Dynamic markets force the organizations to continuously monitor, control and review the inventory levels to cater to varying demand. This makes managing inventories of perishable products much more difficult because of their limited shelf lives. Due to perishability, there is an additional cost of disposal of outdated items, and this can also lead to out-of-stock situations, if not managed effectively. When demand is random and product lifetime exceeds one stage, determining ordering policies is difficult since various states of deterioration of product must be known for every stage. In our study we consider two-stage perishable product where the first stage represents the inventory of fresh items and the second stage represents the inventory of items that are older but still usable. The need for the study of two stage perishable inventory management became critical when certain challenges were faced in the management of blood banks. Blood donated within 42 days could legally be utilized but the quality of blood did not remain the same for the entire period as a chemical compound important in the oxygen delivery decreases with the age of stored blood. Transfusing blood low in this chemical has been shown to significantly increase mortality in animal studies. For this reason, certain procedures such as heart transplants and neonatal procedures require that blood be fresh, usually donated within ten days or less. This problem was overcome with the discovery of new techniques to extend the life of blood by segregating the platelets from serum. But extension of life may not be feasible for all kind of products. This depicts the need for advanced inventory management techniques which involve multiple stages of deterioration within the product life time.