Inventory management for growing items in multi-echelon supply chains

Abstract

Growing items have, in recent years, emerged as a distinct class of items within inventory modelling, similar to perishable or repairable items, for example. This class of items includes livestock, crops and fish, to name a few. The importance of inventory models developed specifically for growing items is due to the utility of these items to humanity and the financial implication that a poor inventory management system can have on a business. Most growing items are consumed as food products, albeit in a form that is suitable for human consumption. From a financial standpoint, inventory often accounts for the biggest portion of the current assets of a business' balance sheet and therefore, a poorly managed inventory system has the potential to financially cripple a business.

The objective of this research is to develop models for managing growing inventory items in multi-echelon supply chain settings. Food production operations are complex industrial systems that often involve multiple entities and processes. Food production systems often start with farming operations at the upstream end of the supply chain, where the live growing items are reared, and end with retail operations at the downstream end of the supply chain, where consumable food products are sold to end-users. The farming and retail ends of the supply chain are often connected by various forms of value-adding operations such as, in the case of livestock, de-feathering, stunning, slaughtering, processing and packaging. These value-adding activities transform the live items into a form that is safe for sale and consumption. Hence, a multi-echelon supply chain structure best represents these operations. This is a departure from most current literature whereby the models not only ignore the value-adding operations but also the multi-echelon nature of food production systems. By accounting for these shortcomings in the current literature, the models presented in this thesis are more realistic and are thus, useful for operations and supply chain management practitioners who can use them when making ordering and shipment decisions in multi-echelon supply chains that involve growing items.

Furthermore, issues such as item mortality, quality control, pricing decisions, quantities of stock on shelves and expiration dates are also taken into account. These issues are important in food production systems and this further enhances the practical use of the models. The importance of these issues, along with that of collaboration between all supply chain members, is quantified through numerical experimentation. In certain instances, the profit generated across the supply chain can increase by as much as 15% if all members collaborate and integrate their ordering and shipment decisions. Prolonging the shelf life (expiration date) of food products by 40% can increase supply chain profits by as much as 21%. Furthermore, supply chain profits can be increased by as much as 10% and 21%, respectively, if survival rates of live inventory items and acceptable quality levels of the processed inventory are kept at 100%. While 100% survival rates and 100% acceptable quality levels might not be possible in reality, operations and supply chain management practitioners should strive to keep them as high as possible. Practitioners should also invest in preservation technologies that have the potential to improve the freshness of products. All these measures, along with increased collaboration between supply chain members, can be used by supply chain practitioners to increase profits across food production systems.