Date of Original Version



Working Paper

Abstract or Description

In this paper we address the optimization of the tactical planning for the Fast Moving Consumer Goods industry using an MILP model. Shelf-life restrictions are introduced into this model to prevent unnecessary waste and missed sales. Three methods for implementing shelf-life restriction are compared. In the direct method the age of each product is tracked. While this method can provide optimal solutions, it is computationally inefficient. In the indirect method, products are forced to leave inventory at the end of their shelf-life. For supply chains consisting of two or more storage echelons this method cannot guarantee optimality. Nevertheless, the solutions obtained with the indirect method were always within a few percent of optimality. Moreover, on average, the computational time was reduced by a factor 32 when using the indirect method instead of the direct method. Finally, the hybrid method models the product age directly in the first storage stage, while considering the shelf-life indirectly in the second stage. The hybrid method obtains near-optimal solutions and, on average, the computational time is reduced more than 5 times compared to the direct method. Cases of up to 25 SKUs were optimized using the direct method, up to 100 SKUs using the hybrid method, and up to 1000 SKUs using the indirect method.