Sensor Applications in the Supply Chain: The Example of Quality-Based Issuing of Perishables
Miniaturization and price decline are increasingly allowing for the use of RFID tags and sensors in inter-organizational supply chain applications. This contribution aims at investigating the potential of sensor-based issuing policies on product quality i
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Institute of Technology Management (ITEM-HSG), University of St. Gallen, Dufourstrasse 40a, 9000 St. Gallen, Switzerland 2 SAP Research CEC St Gallen, Blumenbergplatz 9, 9000 St. Gallen, Switzerland {ali.dada,frederic.thiesse}@unisg.ch
Abstract. Miniaturization and price decline are increasingly allowing for the use of RFID tags and sensors in inter-organizational supply chain applications. This contribution aims at investigating the potential of sensor-based issuing policies on product quality in the perishables supply chain. We develop a simple simulation model that allows us to study the quality of perishable goods at a retailer under different issuing policies at the distributor. Our results show that policies that rely on automatically collected expiry dates and product quality bear the potential to improve the quality of items in stores with regard to mean quality and standard deviation. Keywords: RFID, sensors, cool chain, supply chain management, issuing policies, inventory management, retail industry.
1 Introduction The distribution of perishable goods such as fresh meat and fish, flowers, frozen food of all kinds, etc. poses a major challenge to supply chain management. The complexity of the issue arises from the fact that not only cost efficiency, but also a maximum quality level of products in retail stores is necessary to meet customer expectancies. In reality, however, spoilage because of expired products or interrupted cool chains is a common phenomenon in the industry. On the one hand, fresh products make up about 65% of retail turnover. On the other hand, up to 30% of perishable products are estimated to become subject to spoilage at some point in the supply chain [1]. The resulting financial loss for both retailers and their suppliers is substantial. About 56% of shrinkage in supermarkets is attributed to perishables, which equals several billions of US$ in the United States alone each year [2]. The root cause for many of these problems can be found in the current practices of inventory management, e.g. flawed stock rotation [3,4]. In the context of perishables, the performance of inventory management in the supply chain depends to a large extent on the respective issuing policy that is in place at the echelons between the supplier and the store, e.g. at the retailer’s distribution center. The purpose of these policies is to determine which products are picked and sent to a specific store when an order arrives. Rules that can typically be found in C. Floerkemeier et al. (Eds.): IOT 2008, LNCS 4952, pp. 140–154, 2008. © Springer-Verlag Berlin Heidelberg 2008
Sensor Applications in the Supply Chain
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practice are classics such as ‘First-In-First-Out (FIFO)’, ‘Last-In-First-Out (LIFO)’, or simply issuing in random order. None of these policies, however, is related to product quality since quality in the sense of perceived optical appearance, microbial safety, etc. cannot be verified effectively for a large number of items or logistical units. In recent years, however, the ongoing trends of mini
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