Integrating time-temperature dependent deterioration in the economic order quantity model for perishable products in multi-echelon supply chains

Abstract

This paper focuses on a novel approach for managing cold chains of highly perishable products. We extend the classical and frequently applied economic order quantity model (EOQ) for its application in multi-echelon supply chains for highly perishable products. Literature shows that order-level inventory systems for perishable items are commonly modelled by parametric approaches e.g., a time-dependent (Weibull) deterioration rate. However, the deterioration of perishable fresh products is a complex process, heavily influenced by product dependent characteristics and, crucially, depending on environmental conditions. We take both time-temperature-dependent deterioration, and the multi-echelon aspect of cold chains into account and integrate both aspects into a generically applicable EOQ-based methodology. We demonstrate the concept from a real-life case study for cold chain management in floriculture. Two commonly used multi-echelon supply chains are considered and compared. The results show that the optimal order levels in different echelons of the supply chains are substantially different. In addition to the sojourn time, the temperature has a major impact on order levels, the total supply chain costs, and the remaining shelf-life at the retail level. We demonstrate that the proposed concept for extending the EOQ-based model to time- and temperature-dependent deterioration can be generalized and applied to other specific causes of product-dependent deterioration.