Development of a Replenishment Model towards Waste Reduction in a Fresh Food Supply Chain
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The reduction of waste is becoming an important goal at the strategic level in each type ofcompany. The attention to waste reduction has increased in recent years. This becausecompanies understood that it may lead to different and profitable advantages like cost decrease, improved company organization and control, higher service level towards customers as much as environmental benefits and legal respect, with consequent improvements on company s performance. This argument may be easily seen in food companies where the reduction of waste obviously means cost reduction and higher customers satisfaction. However, the development or the implementation of advanced techniques or behaviours in companies systems in order to reduce waste are still studied because there are lots of aspects and variables to consider and many challenges to face. This project is an attempt to make food companies understand how mathematical modelling can improve replenishment decisions at the retailer stage in terms of waste and costs reduction. For this purpose, four research questions are answered: RQ1: What are the variables to take into considerations for modelling replenishmentdecisions for fresh products? RQ2: How can fruit and vegetables be differentiate in order to develop replenishmentmodels? RQ3: How an optimization model of fruit and vegetables ordering process can beformulated towards inventory and waste costs reduction considering perishability andbatch size constraints? RQ4: What is the impact of using these mathematical models in replenishmentdecisions?The project is composed by a theoretical background review, a case study description, adevelopment and simulation of mathematical models.The theoretical background contains a literature review on fresh food supply chaincharacteristics, including current management challenges and an analysis of food waste causes. The perishability of the product, the low profit margin, the high demand variability are examples of product characteristics that lead to a difficult management. As regards logistic characteristics the short supply customer lead time and customer order lead time, the need of a high replenishment frequency due to product perishability, the need of cold chain systems together with product traceability systems make the fresh food supply network more complex to manage. Particular attention is made on understanding the causes of food waste at the retailer stage in a fresh food supply chain. Causes related with the replenishment system, such as ordering more than real demand or keeping too high inventory level seem to have a great importance. Hence, the basic replenishment theory has been studied including the traditional replenishment control systems and models developed particularly for perishable products. From this analysis, the replenishment variables that need to be considered in a retailer sector in a fresh food supply chain are related to the issuing policy, the demand pattern, the cost factors, retailer and supply characteristics, and the nature of the product. The case study description is based on one of the biggest grocery retailer chain in Norway. A set of interview has been made in four retailer stores belonging to the case company in order to gain knowledge on fresh food replenishment processes and on fruit and vegetables classification. Indeed, six classification criteria have been found for classify fruits and vegetables on a replenishment perspective. They are products shelf life, degree of perishability, average demand, profit margin, products costs, effect of promotion on demand. Those criteria have been used for developing a linear programming model that could represent the aforementioned replenishment system.The developed optimization model aims to help retailers to take the right order decisions while trying to minimize costs and keeping high product availability. It considers a periodic inventory review with fixed lead time and batch size. Purchasing, ordering, holding, transportation, waste and stockout costs are all considered. Forecasted demand is given as an input and two different issuing policy are modelled. In the last phase of the project the replenishment model has been implemented on Microsoft Excel 2010 in order to validate the model (comparing with real data received from the case company) and to simulate optimized scenarios. From the model simulation, both waste and costs are significantly reduced. Therefore, the model can be used as a decision-support technique to improve retailer ordering performance in terms of cost and waste reduction.