Shelf life and expiration dates are common in many industries: food industry, chemical industry, aeronautics… they all have products that go to waste after some time.
In this article we’ll describe how these expiry dates add complexity to the jobs of your production and inventory planners.
When manufacturers make products subject to expiration, they must be careful about the quantities they produce.
If a manufacturer is unable to sell his production within the expiration date of the products, it will be necessary to scrap what has not been sold on time.
But the manufacturer will probably have to scrap more than that because of the minimum shelf life customers are asking for.
The shelf life is the remaining time before a product reaches its expiration date.
- Large retailers do not accept products from their suppliers that are not close to their maximum shelf life.
- Some channels like e-commerce are less picky and accepts products with 50% of shelf life remaining.
The manufacturer will therefore seek to sell products with low shelf life through less picky channels but often this goes with a lower margin.
Any product that has less shelf life than the minimum shelf life customers are asking for can already be scrapped as it can’t be sold.
When it comes to production planning, the planner must:
- have a good sales forecast, per customer. He/she will have to allocate the available stock plus the production batches to the right customer based on the shelf life each customer is asking for. To do so, the planner must be able to identify the quantities that will have to be scrapped at some point in time. These quantities should be excluded from the plan as they are not available for sale.
- wisely dimension the safety stock. It has to cover for unexpected sales or late replenishments but it shouldn’t generate an inventory excess that will lead to scrapping some products.
- act on stock that is about to expire. Once a wastage risk is identified, the planner must decide how to deal with it.
The solutions planners come up with are often quite “creative”:
- freeze the product to extend its shelf life.
- use the product as an ingredient of a recipe. The new product starts with a total shelf life.
- sell it to another customer that has less strict requirements on the remaining usable shelf life.
- organize a promotion campaign to quickly sell the stock.
Planning software supports expiration dates in various ways:
- ERP systems do a good job in recording the production and inventory lot numbers and track the expiration date of your inventory.
- ERP system will issue alerts or warnings when some product inventory is about to reach its expiration date.
That’s as far as an ERP system and it’s MRP calculation go.
- Planning software (such as frePPLe) can generate a future projection of the stock and help the planner take actions to deal with expiring quantities.
- Planning software can also display the quantity of a purchase order or a manufacturing order that won’t get used before its expiration date. That helps planners adapt their production plan.