The efficacy of alternative decision rules for highly perishable consumer goods.

• Author: Badgett, Tom F.
• Position: Report

1. INTRODUCTION

   Products which are subject to rapid physical deterioration or obsolescence place unique constraints upon, and create difficult problems for, physical distribution managers. Fresh food products such as bread and milk are examples of products that are subject to rapid physical deterioration. Daily newspapers are illustrative of products subject to rapid obsolescence.

   The purpose of the research reported here was to identify and examine alternative decision rules in a highly perishable product category. Specifically, the objective was to determine how various decision rules affect the operating performance of a firm engaged in the distribution of a highly perishable consumer good. The study concerned the distribution of bread by a large U.S. baking company. This product shares a variety of characteristics with other highly perishable consumer products. For example: (1) the product is subject to deterministic decay; (2) it moves through non-integrated, vertical channels of distribution; (3) distribution costs account for a high percentage of the product's total retail price; (4) product perishability is a key factor in the design of the logistics system; and (5) the product is a food item.

2. LITERATURE REVIEW AND THEORY

   The literature dealing with distribution problems caused by product perishability is fairly limited and focuses primarily upon inventory control issues. Most studies either address optimal inventory issuing policies (LIFO versus FIFO) or human blood inventory problems (Jennings, 1973; van Woensel, van Donselaar, Broekmeulen & Fransoo, 2007). These studies do not address the problems faced by manufacturers and marketers of most highly perishable products for several reasons (Zhaotong, Liming & Neuts, 2005)

   Those studies that have addressed optimal inventory issuing policies have focused on the general conditions under which LIFO versus FIFO produces optimal results. Few marketers of highly perishable consumer goods can affect the order in which items are withdrawn from inventory (Badgett & DeHays, 1976). Hence these studies have limited value to decision makers who are responsible for the physical distribution of highly perishable consumer goods.

   Likewise, whole blood inventory problems are different than most consumer good applications. One important difference is that cost is of secondary importance in a medical setting. A second difference concerns the supply of human blood. Almost all blood bank needs are met through voluntary donations by the public. Supply in thus a random variable except during periods of public blood drives or when blood is purchased from commercial sources. A third important difference between human blood and most highly perishable consumer products concerns inventory issue policy. Issue is controllable for blood but it is practically impossible to control the order in which items are selected from retail shelves (Badgett & DeHays, 1976). In sum, the results obtained from blood bank studies offer little insight that can be generalized directly to typical distribution systems for perishable commodities.

3. EMPIRICAL RESEARCH AND TESTING

   The study examined the distribution system for bakery products from a large manufacturer to retail stores. this distribution system route salesmen are responsible for delivery, order entry, order processing, and personal selling. Route salesmen report to district supervisors who are managed by a general sales manager.

   Although route salesmen are typically responsible for as many as twenty-five bread and cake items, the major product item is the one and one-half pound loaf of white sandwich bread. This product has a shelf life of either two or three days depending upon the day of the week that it is delivered. Units delivered on Monday and Tuesday are removed on Thursday if they are not sold. No deliveries or returns are made on Wednesdays. Thursday deliveries are removed on Saturday and bread delivered on Friday and Saturday is removed the following Monday. Bread delivered on Sunday is removed from the retail outlet on Tuesday. Since the entire burden of responsibility for stale bread is borne by the manufacturer, distribution decision makers can benefit substantially if effective decision rules or heuristics regarding how many loaves of bread to stock at retail outlets can be developed and implemented.

   3.1 Decision Rules Examined

   Four alternative decision rules were...