Postponement implementation in integrated production and inventory plan under deterioration effects: a case study of a juice producer with limited storage capacity

The aim of this study is to develop a production and inventory plan for a fresh apple juice producer. During harvest season, the producer extracts premium juice from freshly picked apples and keeps an inventory of these premium apples in his temperature-controlled storage facility. The producer extracts also regular juice from regular apples purchased from third-party storages. To satisfy future demand, the producer carries inventories of juice and apple. The levels of apple inventories are constrained by the producer’s limited storage space, but he can replenish regular apples. To assist the producer in facing demand uncertainty and deterioration of apples, we develop a production and inventory plan that incorporates postponement to mitigate demand uncertainty. As postponement decisions are shaped by the cost structure of inventories, we integrate in one model the postponement decisions and the deterioration mitigation decisions that can alter the inventory costs. We build multi-period stochastic programming with recourse model to determine juice batch sizes and apple inventories that maximize the producer’s expected profit. The optimal solution illustrates the use of time and form postponements. We discuss the interactions between postponement implementation and decisions to mitigate apples deterioration. We compare the production and inventory plans with and without postponement and with and without apple deterioration. We also present sensitivity analyses for the plan under varying inventory cost and storage space.