A three-echelon supply chain for economic growing quantity model with price- and freshness-dependent demand : pricing, ordering and shipment decisions

Abstract

The demand for perishable food products is often influenced by the selling price and the age of the items. This is because perishable food products have become commodities from consumers’ point of view, hence, there are very little differences between competing brands. Consequently, factors like price and freshness (or age) become important determinants of consumer demand. This fact has been used to develop several models for managing perishable inventory. However, most of these models were developed from the perspective of a retailer. Today’s increasingly competitive business environment has forced companies to collaborate with fellow supply chain members in an effort to improve profitability and operational efficiency. With this in mind, this article presents a model for managing inventory in a perishable food products supply chain that begins with farming operations where live inventory items are reared and ends with the consumption of processed inventory. The farming and consumption (retail) stages are connected by a processing stage during which live inventory is processed into a consumable form. Consumer demand at the retail stage is a function of the selling price and the freshness of the processed inventory. The farming, processing and retail stages are the three-echelons of the proposed supply chain aimed at maximising the joint supply chain profit. Through a numerical example, the benefits of jointly optimising the inventory replenishment policy (among all three echelons) are quantified by comparing the network performance of a joint optimisation approach (i.e. centralised) to that of an equivalent independent (i.e. decentralised) optimisation policy.