Allocation of a Perishable Product Inventory

A perishable product is periodically produced and allocated among n locations in a region. It is assumed that costs are charged for units short or outdated at any location, and the excess demand at any location is satisfied from outside sources. We prove that the optimal allocation policy minimizes both the expected average shortages and the expected average outdates in the region, and we discuss the management implications of this result. We present the myopically optimal policy M and show that it has similar properties to the optimal policy π*. We prove that π* cannot be “very different” from M; we derive analytic bounds for the performance of π*, and show that the long-run performance of M lies always within these bounds. Finally, some computational results are presented.