Information Sharing to Improve Retail Product Freshness of Perishables (ed.1)

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Ferguson, Mark E.
Ketzenberg, Michael E.
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We explore the value of information (VOI) in the context of a retailer that provides a perishable product to consumers and receives replenishment from a single supplier. We assume a periodic review model with stochastic demand, lost sales, and order quantity restrictions. The product lifetime is fixed and deterministic once received by the retailer, although the age of replenishment provided by the supplier varies stochastically over time. Since the product is perishable, any unsold inventory remaining after the lifetime elapses must be discarded (outdated). Without the supplier explicitly informing the retailer of the product age, the age remains unknown until receipt. With information sharing, the retailer is informed of the product age prior to placing an order and hence can utilize this information in its decision-making. We formulate the respective scenarios as Markov Decision Processes (MDPs) and measure the VOI as the marginal improvement in cost that the retailer achieves with information sharing, relative to the case when no information is shared. We establish the importance of information sharing and identify the conditions under which relatively substantial benefits can be realized.
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