Designing an Optimal Two-Bin Strategy for Selling Perishable Produce to Responsible and Mainstream Buyers

TY - JOUR

T1 - Designing an Optimal Two-Bin Strategy for Selling Perishable Produce to Responsible and Mainstream Buyers

AU - Chen, Li Ming

AU - Yang, Shu Jung Sunny

PY - 2022/5/3

Y1 - 2022/5/3

N2 - Upstream produce vendors in supply chains are paying attention to the possibility of supplying goods to downstream buyers that strive to source responsibly. We explore a problem—the application of a two-bin strategy by vendors to sell produce to responsible buyers (RBs) and mainstream buyers (MBs). In this strategy, goods in the primary bin are supplied to an RB, which procures stable quantities of goods and provides fair procurement prices; goods in the secondary bin are supplied to MBs, which are price sensitive. We investigate a vendor's joint decisions regarding the primary bin replenishment quantity and selling price of goods in the secondary bin for short shelf life and long shelf life produce. For short shelf life produce, we formulate stylized newsvendorlike models and identify the vendor's optimal joint replenishment–price decisions, which are irrelevant to any surplus. For long shelf life produce, we formulate periodic-review dynamic programming models and characterize the solution structure of joint decisions, which depend on the surplus quantity in the secondary bin; the joint decisions are reduced by an increase in the surplus, and when surpluses become sufficiently large, the primary bin replenishment quantity is fixed. We numerically discover that the optimized primary bin replenishment quantity leads to an average profit improvement of 1.5% and that the optimized selling price in the secondary bin results in another 0.25% gain. Furthermore, relative to the sales of produce to only MBs, the supply of goods to an RB can at least double a vendor's profits.

AB - Upstream produce vendors in supply chains are paying attention to the possibility of supplying goods to downstream buyers that strive to source responsibly. We explore a problem—the application of a two-bin strategy by vendors to sell produce to responsible buyers (RBs) and mainstream buyers (MBs). In this strategy, goods in the primary bin are supplied to an RB, which procures stable quantities of goods and provides fair procurement prices; goods in the secondary bin are supplied to MBs, which are price sensitive. We investigate a vendor's joint decisions regarding the primary bin replenishment quantity and selling price of goods in the secondary bin for short shelf life and long shelf life produce. For short shelf life produce, we formulate stylized newsvendorlike models and identify the vendor's optimal joint replenishment–price decisions, which are irrelevant to any surplus. For long shelf life produce, we formulate periodic-review dynamic programming models and characterize the solution structure of joint decisions, which depend on the surplus quantity in the secondary bin; the joint decisions are reduced by an increase in the surplus, and when surpluses become sufficiently large, the primary bin replenishment quantity is fixed. We numerically discover that the optimized primary bin replenishment quantity leads to an average profit improvement of 1.5% and that the optimized selling price in the secondary bin results in another 0.25% gain. Furthermore, relative to the sales of produce to only MBs, the supply of goods to an RB can at least double a vendor's profits.

KW - Biological system modeling

KW - Business

KW - Contracts

KW - Inventory control

KW - joint replenishment and price decisions

KW - Mathematical models

KW - Oils

KW - Procurement

KW - responsible operations

KW - Safety

KW - two-bin strategy

UR - http://www.scopus.com/inward/record.url?scp=85129602687&partnerID=8YFLogxK

U2 - 10.1109/TEM.2022.3148405

DO - 10.1109/TEM.2022.3148405

M3 - Article

AN - SCOPUS:85129602687

SN - 0018-9391

JO - IEEE Transactions on Engineering Management

JF - IEEE Transactions on Engineering Management

ER -