Inventory Policy Improvement with Periodic Review for Perishable Goods: A Case Study of a Retail Coffee Shop in Thailand

Abstract

Inventory management is a fundamental component of successful retail operations. Effective techniques in retail inventory management are important in fulfilling customer demands, minimizing costs, and enhancing profitability for business in the competitive environment. This study aims to improve the inventory management strategy for perishable goods in a Thai coffee shop case study. The primary goals include minimizing occurrences of inventory surplus or shortage and indicating the most suitable inventory management approach for each stock-keeping unit (SKU). The most efficient inventory strategy is determined by evaluating the total inventory costs, composing of waste costs, potential loss costs, and holding costs. To this end, computational experiments are employed, deploying three varied periodic inventory policies per SKU. These policies differ in term of utilizing mean weekly demand, average daily demand, and modifying delivery schedules and frequencies. In addition to exploring various policies, the service level for each SKU is adjusted according to profit-cost ratio of each SKU to determine the most suitable service level corresponding to the most effective inventory management strategy. Following the experiments, an effective inventory policy for each SKU is determined. Results show that the new proposed policies can reduce costs by 60.74%, or about 256,922 Baht yearly, compared to the current policy. The new policy, based on daily demand and delivery adjustments, leads to smaller order, more frequent deliveries, allowing the perishable goods to be more refreshed.