Literature Review

 

Main paper: 

• Perishable Inventory Management with Dynamic Pricing Using Time–Temperature Indicators Linked to Automatic Detecting Devices, by AviHerbon a, EugeneLevnerb,n, T.C.E.Cheng

Supplement papers

(Supplement papersare some papers that are used as the main reference from the main paper. In this review, the supplement paper are reviewed more detail)

• (Supplementpaper 1) Dynamic Planning with a Wireless Product Identification Technology in Food Supply Chain, by Dong Li.DennisKehoe.Paul Drake
• (Supplementpaper 2) Inventory Policy of Product with Price and Time Dependence Demand, by P-S You

1           Introduction

The main paper talks about how to manage inventory for perishable products. Perishable products are products that easily deteriorated overtime. Managing the inventory of such product is challenging due to the decreasing product quality overtime.This will give bad impact for the number of product sold.

Regarding to the bad impact of easily deteriorated product to the product selling number, people attach a label on the perishable products to warn either the retailers or customers that the product will be not properly used once it exceeds its expiry date shown in the label. Since the condition of the product storage can’t be predicted precisely, offline track will be inappropriate to tell the customer about the product quality. TTI (Time Temperature Indicator) -based Automatic Device (AD) is used for tracking product quality through online system. It can give some information to the retailer about the quality of product compared to its expiry date. TTI recognizes any quality decrease occurred, even if the product damage or deteriorated before its expiry date. It informs user in every system instability occurred by detecting unusual temperature that might become a sign for a deteriorated product as the “over temperature alarm” system.

This paper discuss about inventory management problem for perishable products using TTI-based Ads with dynamic pricing policy. As other papers, all methods and tools used in this paper have strong foundation. There are two other papers that become the main reference of the main paper.

The main paper is actually the complement of first supplement paper written by Li (2006) which tried to optimize the product flow in dynamic forwarding process by considering the product quality information provides by the quality product tracking system. This paper focused more on the innovation of food supply chain control, using information provided by RFID and dynamic supply chain planning approach to create the fast respond data regarding to the product quality.

RFID is proved to be the fast tool for tracking the product quality so that the product loss value will be minimized, since the product will get certain treatment regarding to their current quality status. That paper has main objective to minimize product loss value while maximizing the profit, since using RFID is very costly. Based on this paper, the main paper tried to figure out how to manage perishable product inventory system using similar automated detecting device. However, in the main paper, the dynamic pricing policy also applied to maximize the profit.

Dynamic pricing policy used in the paper comes fromthe decrease number of products sold due to their deterioration. This motivates retailer to give certain discount to increase the selling of that products. The closer the product from its expiry date, the more the discount will be. This paper used dynamic continuous pricing policy to determine the decreasing price in discount in a continuous functionbased on the second supplement paper written by You(2004). You paper suggest exponential price reduction by the time elapse from the replenishment. RFID provide some information for the potential customer about the price reduction and expiry date of any item, online. The paper focused on perishable products with price dependent demand, since it is found that products demand are usually price sensitive. This paper emphasized its contribution in the price differentiation strategies. It tried to relax the assumption of conventional model which assumed that the price is previously specified. Therefore this paper covers simultaneously determination of price setting numbers as well as the corresponding prices, to maximize the profit, by determining 3 parameters (order quantity, number of price, and selling price). The result showed an optimal solution which can increase the profit.

2           Criticism

The first supplement paper doesn’t consider some other related cost, such as the cost of the detection technology. This weakness is covered in the main paper, which is also covered the cost of detection technology.  Unfortunately, the demand is assume to be known and deterministic. In the other hand, the uncertainty is often found in the demand numbers.

The second supplement paper didn’t use any automated tools to help in optimizing the result of dynamic pricing strategies. This weakness also covered in the main paper, which use the time temperature indicators linked to automatic detecting devices which proven to be effective in increasing the demand. In addition, there is also another weakness of this paper in the demand assumption. In this paper, the demand is assumed to be linearly declined with time. It means that the demand uncertainty is also not covered in this paper.

In the main paper, there are 3 important concept applied. The first is integer programming concept which is enriched by using the local search algorithm which starts from the first solution candidate and then moves to its neighbor to solve the problem, so that theoptimal solution will be found faster. This algorithm determines some parameter considered in this paper, such as thereplenishment cycle length (T), intensity of the price discount when freshness decreases by one unit (β), etc.  The last concept is simulation experiments using C++ to provide valid conclusion (0.99 level of confidence). The result is that using 0.99 level of confidence, the price differentiation strategy is proven to be valid in effectively increases the profit.  However, similar with the previous paper, the main paper also assumes that the demand is identically distributed. It means that demand uncertainty is not well covered in the paper

 

3           Comments

Both of the paper has a good contribution to perishable product inventory management area, since the paper give certain emphasize on what should be considered when dealing with perishable products, either from price or quality and innovation perspective. Perishable product management is often challenging due to its deterioration over time characteristic, so that the product quality is often unstable. This leads to the instability of demand and price. The unstable quality decrease customer satisfaction. Therefore the retailer should have particular strategies to keep satisfying the customer.

There are two ways to satisfy customer of the perishable products, the first is by managing product quality that needs big investment to provide all the facilities (such as RFID or other automatic detecting device). The second is decrease the price which can lead to profit decrease. Therefore, there is a need to managing the price when using both of the price reduction or quality control concepts. By using the automatic detecting device, the quality of perishable product will be effectively kept, which means that product will get appropriate treatment based on its quality status, since even expiry date can’t give 100% guarantee for the product to be not expired before the date listed. The automated detecting device help in figuring out all the chance of the quality product happened in the storage place, even when the product has a potential in being expired before its expiry date. In the other hand, by managing product price, the profit reduction can be prevented.

The first paper result shows that the assessment using RFID-based approach in supply chain planning can save around 2% – 7% savings as long as the assessment conducted is the appropriate one. The second paper result shows that using the price and order quantity approach is an optimal solution when dealing with perishable products. The main paper showed that the application of TTI-basedADswhen managing the inventory system by adopting the price differentiation concept increase the expected profit by 7–30%. All of that statement showed that managing inventory of perishable product is not something too difficult. Many researchers tries to solve this uses many methods, from the simple to the sophisticated ones.

 

4           Future research

Based on the critics for all 3 related papers, it shows that there is a need to cover the demand uncertainty in inventory management for perishable products researches. This is due to the demand pattern which is often uncertain. Therefore, the demand should be set into stochastic instead of deterministic for the future research

 

REFERENCE

1. Perishable inventory management with dynamic pricing using time temperature indicators linked toautomatic detecting devices. International Journal of .Production Economics 147(2014)605–613
2. Dong Li, Dennis Kehoe, Paul Drake. Dynamic Planning with a Wireless Product Identification Technology in Food Supply Chains. International Journal of Advance Manufacturing Technology (2006)30:938–944.
3. Inventory Policy for Products with Price and Time Dependent Demand. P.S. You. Journal of Operational Research Society(2005), 56, 870-873.