Leafy green inventory control
One of the basic problems of sustainability in modern society is the reduction of waste, particularly when it comes to food. Food waste has negative impacts on different dimensions of sustainability: social (hunger), economic (resource costs), and environmental (resource consumption and waste generation). This paper focuses on waste reduction through improving the inventory management system in the dairy distribution chain by the application of modern information and communication technologies (ICT). The leafy green approach is tested and verified in a case study by application of simulation modelling. Two inventory management models are created, and their impact on waste in the distribution part of the supply chain is examined. Model 1 represents the current dairy inventory management system in the supply of retail stores. Model 2 is based on a higher level of information connectivity between participants (RFID product labelling and the appropriate level of information technology), enabling automatic product ordering and changes in inventory management policy. The obtained results confirm that coordinated inventory management, supported by the application of modern ICT, can significantly contribute to the improvement of the sustainability of the food supply chain, and provide an exact quantification of the given contribution in the case of the dairy industry.
Keywords: food waste; inventory management; RFID; simulation; retail supply chain
1. Introduction
In the 21st century, companies and society are facing major changes and numerous challenges. Perhaps the biggest challenges arise from the concept of sustainability, which is becoming an important component of present-day business models. The biggest opportunities for facing these challenges are provided by modern information and communication technologies (ICT).
The reduction of waste is one of the fundamental issues in a sustainable modern society, and when it comes to food, the implications are even broader. At the origin of economic, environmental, and social concerns, food losses and waste tend to become a symbol of the inefficiency, unfairness and unsustainability of food systems. Food losses and waste can occur in various phases of the food supply chain: (1) agricultural production (pre-harvest/production, harvest); (2) post-harvest handling and storage; (3) processing; (4) distribution; (5) retailing; and (6) consumption (adapted from [1]), and their reduction contributes to the establishment of sustainable food systems and the overall sustainability of a society. Adopting a more respectful approach to the environment is now an obligation, not a choice [2].
The last decade has seen a huge increase in the adoption of various information and communication technologies in all industrial sectors. ICT and digital platforms enable increased connectivity of digital technologies to enhance communication, services, and trade between people, organizations, and things [3]. There is no sector in any industry that has been left untouched by digitization [4]. Logistics and supply chain management is no exception. The functioning of a logistics system results in the flow of materials and related information and is based on the application of different logistics strategies and the use of a wide range of resources. Due to the adoption of ICT technologies, logistics and supply chains are able to monitor both the material and the information flow and collect and analyze a variety of data for efficient management [5].
This paper embraces the premise that synchronization of information and material flow is essential for reducing food waste and improving the sustainability of a perishable food supply chain [6], and that logistics is instrumental in the synchronization and management of these flows. Appropriately designed, developed, and applied logistics solutions can help reduce food waste. In confirmation of this claim, the paper [7] identified nine particular logistics solutions with strong potential in reducing food waste, of which seven of them reduce food waste in terms of passed expiration dates (collaborative forecasting, matchmaking lead time and shelf life by coordination mechanism of rules, low safety stock, make-to-order flows, coordination mechanism of rules in defining stock level, price reductions for products that have exceeded, and coordination mechanism of information sharing), and two reduce food waste in terms of damaged packaging (visualizing damaged packaging by information sharing and joint decision in packaging development). Based on these starting points, the paper explores the potential of Radio Frequency Identification (RFID) labelling of products as a technology that allows flows of goods and information to be connected at the lowest level, as a prerequisite for efficient information sharing and coordinated decision making. This research deals with one category of dairy products for the following reasons: (i) it is one of the main product groups associated with food waste in stores, estimated to be around 12–14 kg per capita per year [8] or with share of around 6% of total retail food waste, after vegetables (around 27%), bread (around 23%), meat and fish (around 19%), and fruits (around 17%) [9]; (ii) dairy products require about 3500 g CO2-equivalents per kilogram for their production, processing, packaging, storage, transport, and trading [10]; (iii) they have a clearly defined shelf life and are generally discarded when their best before date has expired and, finally; and (iv) they are sold in a package (which makes them suitable for RFID tagging). The focus of the research is on the quantification of inventory performance (the amount of waste, average inventory, turnover ratio, and turnover time) in the downstream part of the supply chain (from the manufacturer to the retailer), for two inventory management models. The first model examines the existing replenishment policy and the second is a modified and enhanced replenishment policy that uses RFID technology. To determine stock performance, due to uncertainty in product demand, simulation modelling was performed.
This research contributes to the literature in two ways. Firstly, it confirms the positive impact of modern technological trends on inventory management, supported by concrete values in a real case study. This is performed by combining the relevant literature on logistics and supply chain management along with ICT as enabling and disruptive technologies with real problems in dairy distribution in the Western Balkans. Secondly, it enables the generalization and extrapolation of the results to the other countries in the region. To our knowledge, no similar research has been conducted in this region, and due to similarities in customer behavior and the principle with which the stocks are managed, we believe that the obtained results can be generalized to other nearby countries. Besides, solving the identified research gaps, our results also have a practical value for supply chain managers, since identified amounts of dairy product waste can be accepted as a point of reference for the region and can help managers in deciding on inventory management policy.
This paper is organized as follows: Section 2 gives a brief review of the literature on the sustainability of food systems and the role of logistics, the impact of RFID on logistics processes, and the simulation modelling of logistics processes. Section 3 defines the problem, proposes a solution procedure, and explains the structure of the developed simulation models. The results are presented and discussed in Section 4. Finally, research limitations, potential future research, and concluding remarks are given in Section 5.
2. Literature Survey
Due to the complexity of this research, which involves different research topics, the literature review comprehends: (1) food waste reduction in the context of sustainable supply chain management; (2) RFID technology in logistics and supply chains; and (3) simulation modelling of logistics processes.
2.1. Food Waste Reduction in the Context of Sustainable Supply Chain Management
Logistics ensures availability of products on the market connecting production processes with consumption processes. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third-party logistics services providers. Logistics management is part of supply chain management (SCM) that plans, implements, and controls the efficient, effective forwarding and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements [11]. SCM is understood as the organization and coordination of a set of distinct functions performed intra and inter-firms that constitute the supply chain, in order to create value by the supply of products and services to the market [12]. In this paper, supply chain activities are understood as all activities of general vertical coordination among supply chain partners, without a focus on the hands-on execution of logistics task [13].
The concept of sustainability with its three dimensions (economic, environmental, and social) is increasingly becoming a strategic business initiative in companies [14]. In the past few decades, logistics management and supply chain management have actively considered sustainable development [15]. Its application has been extended from the original economic performance to cover the environmental impact and community quality of life [16]. However, an SC is only sustainable when it achieves realistic business performance [17] and the economic dimension is the first consideration in most sustainable SCM-related decisions [18]. The concept of a sustainable supply chain currently covers a wide range of possible aspects, requiring that its actors meet environmental criteria (reduction in the consumption of energy, water, and other natural resources; reduction of CO2 emissions, waste reduction, etc.) as well as social criteria (improved working conditions, safety at work, consumer safety, etc.), while at the same time expecting maintained competitiveness by meeting customer needs and related economic criteria [19].
The development of sustainable supply chains is focused on improving economic, environmental, and social benefits and can be measured by a number of performance criteria. In the reference [20], the authors defined seven dimensions of sustainability and for each they also identified the appropriate set of indicators. Waste reduction is one of the primary goals, and when it comes to food the implications are even broader. This is confirmed by the fact that the UN has defined goal 12.3 as one of the development goals of sustainability: by 2030, it seeks to halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses [21]. Food losses and waste can occur at different stages of the food supply chain depending on several specific factors such as type and characteristics of food products, economic and climatic conditions, production and infrastructure systems, and market and consumption features [22,23]. Food waste occurs when an edible item is unconsumed at the end of the supply chain, including retail [24], which is estimated to account for around 5% of total food waste along the supply chain [25], or around 4.6 million tons in 2012 [26].
The problem of food waste depends on the characteristics of the product as well as the characteristics of the supply chain: in responsive supply chains, more food losses are more expected than in efficient ones since generally the improvement of responsiveness leads to an excess of buffer capacity and inventories to face demand variability, while in an efficient supply chain the members manage their activities in order to meet predictable demand at the lowest cost [27]. The set of causes of food waste as well as of reduction practices identified in the literature is quite extensive. The paper [28] summarized the causes of waste and practices to reduce or prevent it in the retail sector and divided them according to six categories of causes based on the Ishikawa Diagram: machines, method, labor, material, environment, and measurement. For each category of causes they identified a range of particular causes and related reducing practices. According to this paper, one of the most cited causes was poor control/management of inventory, lack of coordination/collaboration, lack of information sharing, lack of integrated IT systems, lack of operational control, lack of waste management, inadequate packaging, etc. As the main food waste reduction practices, they stated the collaboration/communication between supply chain partners, inventory policy, employee awareness of waste, pack-aging development, etc. Apart from these reduction practices and strategies for waste prevention, which are analyzed in [28,29], adopting the concept of sustainability and raising awareness of the need and importance of reducing food waste in supply chains have resulted also in various strategies for food recovery and food donation, as well as food waste valorization through processing food waste into chemicals, materials, and energy, or extracting high-value target compound from food waste [30]. Approaches for recovery and food donation were analyzed in [27] from an economic perspective. The authors have developed a model that determines the optimal time to withdraw products from retail and divert them to an alternative purpose (e.g., donate to feed poor people, or, if they cannot be used for human consumption, use them to feed livestock). For fast localization of such products, it is necessary to apply new technologies such as RFID. The results showed that in order to apply this approach, it is necessary that tax reliefs and cost savings in retail be higher than the profit that would be realized without such an approach.
It is estimated that about 1/3 of food (approximately 1.3 billion tons) is globally lost annually [1]. In developing countries, higher food losses are mainly in the first stages of the supply chain, and in developed countries, they are at the level of retail and consumption [1]. If the lowest loss and waste percentages achieved in any region in each step of the FSC could be reached globally, food supply losses could be halved [31]. It is estimated that 25% to 50% of food in the supply chain becomes waste [32]. If the part of the food supply chain from the food production company to the consumption is examined, the largest quantities of food waste are generated in households (53–71%), then in food production and processing companies (17–30%), food service providers (9–12%), and retail (2–9%) [33]. Although the amounts and types of food waste generated in retail have been studied in detail, the food waste quantities are not always well documented [34].
However, all studies come to similar conclusions regarding the food commodities that account for the highest share of retail food waste. As it has been already stated, types of food that are mostly wasted in retail include fruits, vegetables, and bread [35]. Thus in retail in Austria 81% of the total food waste (in monetary terms) comes from fruits and vegetables, bread, pastries, and dairy products [36]. In Sweden, of the total amount of food waste, 42% is bread and pastries, 29% is fruits and vegetables, 12% is meat, 6% is ready meals, and 6% is dairy products [37]; in New Zealand, of the total amount of food waste, 44% is fresh vegetables and fruit, 23% is bread, 19% is meat and fish, and 6% is dairy products [9]; and in Finland, the main product groups associated with food waste in stores are fruits, vegetables, bread, dairy products, and fresh meat and fish, whereas estimations regarding Finnish wholesale sector and retail losses are around 65–75 million kg annually, which corresponds to around 2% of the total food waste [8]. Even though retail has lower amounts of food waste compared to other steps in the food value chain, it has a significant influence on food waste generated throughout the supply chain [37]. In addition, there are several reasons why the study of retail food waste is particularly important [26]: retailers have a great influence on both food production and consumers, the absolute quantities of food waste at retail stores are very significant in relation to the number of the points where it is generated, and retail stores are the place where several different food chain actors meet.
If food losses and waste were halved at all stages of the supply chain, there would be enough food for a billion extra people [31]. In addition to ethical implications, food waste produces significant economic and environmental costs. Food waste causes the waste of valuable natural resources (land, water, and energy), increases the cost of food production [22], and has negative effects on the environment by increasing the total amount of waste (from food and non-food products). Companies that adopt some of the food waste reduction strategies can achieve financial savings and reputational gains [33].
The importance of reducing food waste will be even more important as we move into the future. Considering the amount of waste generated, it is also important to understand that, as a matter of fact, it is not just food that is wasted. Another element that should also be considered is packaging. With a disturbing amount of food packaged with long-lasting plastic, which is exactly the situation in the case study this paper deals with, food and packaging disposal is fast becoming a nightmare for sustainability.
It is clear that the reduction of food waste in supply chains can contribute to the economic, environmental, and social dimensions of sustainability. One of the preventive approaches for reducing food waste, very often perishable products, implies better inventory management, i.e., better matching of product supply with their demand. Therefore, the synchronization of information and material flow could be essential for reducing food waste and thus improves the sustainability of the perishable food supply chain [6].
News about the rising carbon footprint and environmental degradation is commonplace now. But that doesn’t mean we sit back and do nothing about leafy green inventory. While most organizations consider the planet their own private dumpyard, you can stand apart from them by practicing sustainable inventory management practices, because giving back to Mother Earth is now more necessary than ever. And what better place to start than your warehouse right?
The warehouse is very important for any business since its a safe haven for their inventory. While the inventory is the most valuable asset, handling it produces a ton of waste materials, that gets dumped into open land and water bodies, making it a potential liability for Nature.
Going green and adopting sustainable inventory management practices will not only benefit the environment but also your business. No matter how small or big the change maybe, it will make a difference. So, I came up with a few simple ways to help you transform your business into an eco-friendly one.
The three Rs
The three Rs
Do you remember in school, during the environment Ed class, we learnt the importance of the Three R’s- Reduce Reuse and Recycle. And not to mention, those YouTube tutorials showing us how to make bags out of old jeans are a constant reminder.
Applying such green inventory management principles inside the warehouse can go a long way.
Increase the life of packing material. You can start by setting up sortable bins near all trash receptacles, and at every station in the warehouse. Recycle anything from cardboard, packing peanuts, bubble wrap, plastic or paper.
You may have noticed that when you need to return an order from Amazon or Flipkart, they ask you to keep the packaging material intact and return it? This is collapsible material which can be reused several times, resulting in reduced wastage and saving money in terms of continuously investing in packaging material and the first step in sustainable inventory management.
Save Paper Save Trees
Save Paper Save Trees
Why waste paper on invoices when you can send them digitally?
Paper invoices use up tons of paper only to be thrown out after sometime. Now that’s a total waste. Most e-commerce platforms are opting for e-voice or electronic invoice to minimize the use of paper. Due to the GDPR guidelines, you need to ask customers to add their email addresses to the database. If they don’t agree, you can simply ask them if they are in for an e-receipt and send them one if they agree. Many businesses use this to expand their customer base and customer engagement.
Now that’s a smart move in terms of both green inventory management and marketing, of course.
It’s always Sunny!
According to the Bloomberg New Energy Finance report of 2017, solar power is taking over coal faster than imagined. A renewable form of energy that was once so expensive, solar power will become cheaper than coal and natural gas by 2040. Solar powered panels and lighting options are able to provide safer, sustainable lighting. Solar panels also have a longer life span as compared to other lighting fixtures, so you don’t have to spend on lights after every few years.
You can take inspiration from e-commerce giant Amazon, who has plans to install solar panels on the roofs of 15 fulfilment centres.
Well, now you know the sun isn’t going anywhere and you can always rely on solar energy to power your warehouse, machines and lights.
Lights on! Light off
Since a warehouse occupies a large amount of space, it requires adequate lighting. If you don’t utilize energy-efficient fixtures your lighting and energy bills are sure to skyrocket. There are a number of ways you can cut down on your lighting costs while being kind to the environment. LED light bulbs are a super saver! They not only light better and longer but save upto 50% power consumption.
Skylights not only offer a beautiful view of the night sky in your room but they can be a great means to slash the need for lighting in the warehouse during the day.
You can also install motion sensors and connect it to lights so that they come on only when someone walks in. This can prove helpful as employees won’t have to worry about remembering to turn off the lights when they leave. These are some simple and cost-effective ways in which you can practice green inventory management.
Build Green
Build Green
The trend to ‘Go Green’ is increasing rapidly across industry sectors, including the building and construction industry. Of course, the shift towards sustainable inventory management will affect inventory management, because the adoption of sustainable materials will impact stocking, storage and pricing decisions. Consumers have a wide range of green construction materials to choose from, according to their budget, availability, and customization.
From a logistical point of view, sustainable materials require a long time to produce and fewer days to modify. For example, a sustainable alternative, modified pine, can take up to 30 years to mature, but only 3-4 days to mature, resulting in only a few months of logistics, lesser hassle and greater inventory control.
Don’t Let the Air escape!
If your warehouse is not properly insulated, warm or cool air will escape easily, spiking up insulation costs and wasting valuable energy. Geothermal heating and cooling system maintain comfortable temperatures for warehouse operators to work and products to be stored. Replace old doors with automated ones or those with motion sensors at entry points to conserve energy. A programmable thermostat can be used in rooms of the warehouse that remain unoccupied or inactive for set periods of time. Proper sealing of air ducts that disperse air throughout the warehouse can reduce energy wastage to a significant extent. Supermarket behemoth Walmart took the first step towards sustainable inventory management practices with its demonstration store in Burlington Ontario, Canada, to try out a unique geothermal heating and cooling system for its stores and distribution centres.
Go Local Go Green
Go Local Go Green
Working with local suppliers has multiple benefits. When your supplier is close by, you can save on energy consumptions and gas emission for transportation. Working with local suppliers will reduce downtime increasing efficiency in fulfilling orders. Your profitability will improve as local vendors are more cost-effective. Stock and transportation related issues will be resolved faster as well. Due to the close proximity of local vendors, you can maintain stock levels, avoid overstocking, understocking or inventory shrinkage.
If not going local, you can learn from Nestle who has made a head start by developing Nestle Supplier Code that deepens relationships with suppliers and encourages eco-friendly practices to allow safe sourcing, procurement and supply of materials for its business. It’s RISE initiative assists in identifying strengths and weaknesses in sustainability across the supply chain, helping you revamp your sustainable inventory management practices.
IoT weds Green Equipment
Green Equipment
IoT isn’t just meant for home appliances. You can even manage your warehouse facilities with IoT connected devices. To maintain the quality and storage of your inventory, you need to keep your warehouse space clean. But how do you do that conveniently for a large space?
You can control your cleaning, recycling, loading machines from your phone through IoT. Wondering why this is way to sustainable inventory management?
With IoT connected devices, you are rewarded with detailed reports about their performance. Armed with this data, you can monitor your machines’ work cycles, in order to reduce waste, conserve energy, and mitigate maintenance issues quickly.
Due to the alarming rise in air pollution levels in most cities of the world, organization are gradually leaning towards electrical equipment. Electrical forklifts have become a good alternative to gas forklifts in this case, as they reduce gas emissions in the vicinity of the warehouse, maintaining safe working conditions for staff and are environment friendly.
Why Sustainability Inventory Management is the way to go?
Being “eco-friendly’ isn’t just a fad anymore. Consumers are slowly becoming aware and responsible citizens of the planet. While most consumers deeply relate to their favourite brands, they expect those organizations to be the same. It can be an excellent customer retention strategy. Going green with sustainable inventory management practices is not only good from the sustainability point of view but also from a business perspective. It reduces costs, projects a favourable image about your brand to consumers, and it makes you efficient and profitable. And in terms of supply chain and inventory management, it streamlines warehouse functionality, which lies at the heart of it all.
2.2. RFID in Logistics and Supply Chains
In addition to the concept of sustainability, digitalization is becoming an important element of business models and causes radical changes in the way companies operate. Although manufacturing, logistics, and SCM have gained maturity over the last decades, saturated markets and new customer demands put pressure on these systems, turning them into even more complex ones [38]. The adoption of various ICT and digital platforms has enabled logistics and supply chains to meet new market demands and reduce their complexity. At the same time, new business opportunities have emerged and new requirements and changes in the structuring and management of these systems have been initiated, further increasing their complexity. Nowadays, the volume of data in every supply chain is exploding from different data sources, business processes, and IT systems, including enterprise resource planning (ERP) systems; orders and shipment logistics; customer buying patterns; and technology-driven data sources such as global positioning systems (GPS), radio-frequency-based identification (RFID) tracking, mobile devices, and others.
Logistics real-time visibility becomes more important when it is necessary to be able to react to sudden changes [39]. Auto-ID technologies establish a connection between logistics-physical objects and management systems and represent the first step in achieving logistics real-time visibility. The application of bar code and RFID technologies in logistics, as the most common forms of auto-ID technologies, enables fast and accurate product identification and supports production, transport, handling, warehousing, and sales operations, together with the reduction of lead time and operational and transaction costs [40]. Despite the fact that in the last fifty years the bar code has become omnipresent in retail, the new business environment explores the potential of sensors, block-chain, and other technologies that are being introduced in the retail supply chain [40]. RFID technology enables automatic, contactless identification of objects, people, or animals via radio signals transmitted on a certain frequency [41], which has numerous advantages over bar code technology such as identification and tracking of individual objects (product, pallet, container, transport, or loading equipment), high reading speed, and simultaneous reading of several objects. Reading is possible outside the visual range, storing a large amount of data, direct communication with the product, decentralized data storage, two-way communication, etc. [40]. In the context of food quality and safety, EC Regulation 178/2002 stipulates that some food products and their ingredients must be continuously monitored along the entire process chain, down to the original manufacturer, a requirement that can be supported by RFID technology. RFID tags with built-in sensors that measure different ambient conditions (e.g., temperature, humidity, and pressure) can contribute to preserving product quality (signaling when defined conditions are violated), which is especially important for (longer) perishable food supply chains.
Research on the application of RFID in supply chains is numerous and focused on various topics: technical problems and methodological implementation procedure, costs and usefulness of technology for different participants in supply chains, operational efficiency of logistics processes, inventory management policies, security and privacy issues, etc. A review and systematization of the abundance of academic literature on the application of RFID in supply chains has been given by several authors. The general classification of papers according to the most used approaches and the main topics of the publications on RFID applications in supply chains given in [42] is particularly useful.
At the beginning of this century, large retail chains such as Wal-Mart, Metro, Tesco, BestBuy, and others gave a strong impetus to the development and introduction of RFID in retail supply chains. Wal-Mart was the first to issue an RFID technology mandate, which required its top 100 suppliers to put RFID tags on their pallets and cases beginning in January 2005 [43]. As a result of the application of RFID technology on pallets and larger packaging in Wal-Mart stores, they reduced out-of-stock items by 16% while reducing inventory in the supply chain [44]. A test at Metro showed that inventory shortage costs, which ranged from 9% to 14%, could be reduced by 17%; thefts could be reduced from 11% to 18%, and labor costs from 8% to 11% [45]. After the initial expansion in the use of RFID in retail, its adoption slowed down slightly after 2008 [43]; however, a general hypothesis that RFID could help retailers to sell more and dispose of less can be made.
To determine the impact of RFID systems on logistics and supply chains, it is first necessary to identify the type and location of RFID impacts on business processes and then calculate the benefits in the supply chain as shown in [41]. In [46], a model was proposed that supports the structuring and calculation of benefits in business processes from RFID investments and enables the identification of the type and place of influence in the value chain, and impact measurement indicators. The application of RFID in retail supply chains contributes to reduced costs and increased operational efficiency of logistics processes through automated entry, commissioning and exit of goods, as well as better utilization of employees, as concluded in [47,48]. The application of RFID technology and the electronic product code system to the main processes of the three-tier supply chain for fast-moving consumer goods has shown that at the pallet level positive economic effects are achieved for all chain participants, while product-level labeling showed negative economic results [49]. However, labeling items in retail supply chains allows for increased visibility of demand [50]. Product value and demand characteristics have a significant impact on the expected benefits of integrating RFID into a three-tier supply chain [51]. Better management of inventory is a reason why RFID is being used by retailers [52,53]. For determining the benefit of the RFID in the retail sector, in [52] content analysis was used by combining trade and academic articles, including both pilot studies and real implementations. The authors demonstrated that there were strong relationships between retailer benefits and RFID business processes, and that better management of inventory is a reason why RFID is being used by retailers. The impact of RFID tagging on out-of-stock items is not the same across all product categories. For some product categories (products that have a greater turnover, greater sales volume, greater product variety, lower item cost, and greater inventory density), the out-of-stock reduction ranges from 21% to 36% [53]. There is a strong relationship between the cost of RFID technology and the value of products lost due to inaccurate inventory data [54]. Inventory inaccuracies are eliminated or reduced in the supply chain by implementing RFID [55]. Inter alia, integrating sensors with product-level RFID tags can help reduce waste in perishable food supply chains [56]. In general, from a food waste perspective it is particularly important to protect food products with high environmental impact, such as fish, meat, and dairy products. Therefore, solutions that give some kind of “smartness” to the products and enhance efficient data sharing at the same time may increase their shelf life. Intelligent food packaging driven by RFID provides opportunities to retailers for sharing data with suppliers that help them to improve their production planning, achieve faster stock turnover, and reduce waste [57]. The role of technology-based innovation, as is the case with RFID, could be crucial for solving an issue as complex as food wastage [58]. RFID provides a broad range of possibilities for their expanded usability through a number of new and innovative solutions whose application can reduce waste in different parts of the supply chain. According to the aforementioned paper [59], RFID systems are one of several technological solutions (as well as ERP, electronic data interchange, cloud computing, and machine-to-machine) that can improve both efficiency and reduction of food waste in the FSC. For example, in [60] the authors explored the usage of RFID technology in the newly proposed household-based food waste charging system with the final aim to reduce food waste while empirically demonstrating the justification of the proposed system.
One of the main problems in the implementation of the RFID system is the disagreement between the participants in the supply chain concerning the division of necessary investments and the achieved profit [61]. While most savings are achieved in retail, suppliers are mostly burdened by the cost of introducing RFID [47]. Despite the many advantages of RFID technology, there is a view that RFID is an upgraded barcode system with a huge cost and few benefits [62].
If there has been any skepticism regarding the usefulness of RFID applications in supply chains, the new wave of technological change happening now is about to change that. In the era of digitalization as the personification of Industry 4.0 [63], RFID is an efficient means of object identification and one of the primary sources for generating data in the supply chain. As a result of a systematic literature review of Logistics 4.0 and the main characteristics of new logistics systems, provided in [13], it was concluded that new logistics systems are a necessary element of future production and trade networks. This review covered new technologies such as the Internet of Things (IoT), cyber-physical systems (CPS), big data, or cloud computing, and pointed out that IoT, which is strongly associated with RFID, is the main technology that provides the necessary visibility in logistics. RFID is a major prerequisite for the Internet of Things (IoT), which connects physical objects to the Internet [55], i.e., RFID-based information systems are considered the best candidate for IoT-based implementations, which connect the physical and virtual worlds by “sensing” different “things” of interest [40]. It could be concluded that RFID technology is a disruptive technology to transform supply chains into more efficient systems [64].
2.3. Simulation Modelling of Logistics Processes
Two approaches can generally be used to model logistics processes: analytical and simulation [65]. Analytical models are characterized by numerous advantages such as conciseness in the problem description, closed form of a solution, simple assessment of the impact of input on output variables, and ability to achieve optimal results, but they also have disadvantages such as inability to include multiple variables, system assumptions can be unrealistic, and complex mathematical formulations can be complicated to solve [66]. Therefore, simulation modelling is often the only way to effectively model complex processes in supply chains. According to the systematic literature review, the simulation modeling was most frequently used method in the research of the following topics: supply chain management, production planning, and inventory management and control [67]. In addition, simulation is widely used methodology for evaluation of economic, social, and environmental aspects of sustainable supply chains [68].
A simulation model is a representation of a system of interest, used to gain insights into existing systems and investigate systems under new operating conditions. Discrete event models represent a system in which the state of the system changes only at a discrete set of points in time [69]. The main reasons to use discrete event simulation for system analysis in supply chain management are (i) the possibility to include dynamics and (ii) the simplicity of modelling [70]. In the field of logistics and supply chain management, discrete system simulation offers solutions to a wide range of issues at strategic, operational, and tactical levels, addressing supply chain design and reconfiguration [71,72,73], production scheduling [65], and supply chain collaboration and information sharing [74]. The object-oriented approach is particularly well suited for supply chain modeling, because there is a natural mapping between objects in the system being modelled (e.g., distributor, supplier, plant, vehicle, etc.) and their abstractions in the object model [75].
An important guideline for this research was the simulation model of the collaborative logistics in the agri-food supply chain, which, when tested on a case study, proved that increase of information sharing frequency can significantly improve the performance of a SC and that the benefits of it increase with the order frequency [76].
3. Research
3.1. Problem Description
This paper investigates the possibilities for the preventive reduction of waste from dairy products through synchronization of information and product flow in the distribution part of the supply chain. The case which is analyzed is the distribution of dairy products directly from producer to milk processing plant to supermarket, as a place of sale of dairy products (Figure 1). The term food waste refers to the total amount of products that are neither sold nor returned and that can occur both at the producer site and in the supermarket.
Sustainability 13 06511 g001 550Figure 1. Research domain (based on [77]).
The manufacturer produces and processes milk in the Western Balkans region, and it delivers its products to over 300 stores. Both the producer and the retail chain strive to provide their customers with high-quality products, ensure high levels of customer service, and integrate the concept of sustainability into their business models. In order to meet the market demands for products, both the producer and the supermarket hold large stocks, which, combined with other factors such as short shelf life of dairy products; insufficient visibility of products in warehouses; sales; and other segments of the supply chain, as well as lack of information on expiration dates at particular locations, results in a significant amount of waste generated in the distribution process.
The purpose of this research is to examine and quantify the possibilities for reducing dairy waste by improving inventory management systems and product ordering processes. The research is conducted through the case study and simulation modelling of logistics processes and flows of goods. The first step was collection of the necessary data from the real case, followed by the development of the simulation models that enabled the quantification of food waste and other indicators of inventory management efficiency (average inventory level, turnover ratio, and inventory costs). Two simulation models were created: the first model considers the existing inventory management policy and ordering process (Model 1-As-Is state), and the second represents improved inventory management and ordering policy (supported by RFID technology) aimed at reducing food waste while meeting market demand for products (Model 2-To-Be state).
3.2. Problem Statement and Solution Proposal
The structure of the studied two-echelon supply chain, i.e., the created simulation models, is composed of two nodes: the producer and the supermarket, between which the flows of materials and information take place (product delivery, sales, purchase order, and production start order). Each node is described through the initial state of inventory and input and output product flows (dynamics and quantity) and the rules based on which product flows are started, i.e., stocks are replenished. The research domain and problem outline are shown in Figure 1.
One type of dairy product was selected as the target product for the case study. This product category requires temperature-controlled conditions (during warehousing, transport, storage in stores, and storage at the final consumer’s home) and is classified as short-term products with a shelf life of up to 30 days. The supermarket was chosen as the sales format for the following reasons: the width and depth of the sales assortment, as well as the size of the sales space, enable the generalization of results to other retail categories; due to economies of scale, it is estimated that RFID has a positive impact on process efficiency in supermarkets [78]. Two different questionnaires were developed for collecting data—one for the producer and one for the supermarket—and they were complemented with the data obtained by direct process monitoring. The questionnaires were designed to collect general data such as product type, packaging type, product value, employees, technical means, mode of transport, working costs, number of shipped/received packages per day, number of products sold daily, days of the week when shipment/receiving takes place, and rules of stock replenishment, as well as specific information related to the research processes. The intensity of product flows was determined using the time interval of one day and the data on the daily input-output of the product.
As mentioned above, two simulation models were developed. The model of the existing flow of goods (Model 1-As-Is state) examines the functioning of the actual system and was developed based on the collected data and in consultation with employees working in current systems. The process of selling products (product exit) in the supermarket drives all other processes in the chain. Every morning by 8 o’clock, the manager inspects the state of the product in the supermarket, and, if necessary, orders from the producer. During this inspection, errors are possible due to insufficient visibility of the product in the back-room storage and on the shelves and the lack of information on the shelf life of the product. The quantity of the order is variable and defined by the difference between the maximum stock level for that product (S) and the state determined by the inspection. Therefore, the supermarket applies a (T, S) stocking system (renewal period T = 1 day). The producer processes the received orders at 12 p.m. and confirms the delivery that is made the next day (LT = 1 day). The delivery that is made from the warehouse of finished products is made by the producer. It takes a minimum of 3 days (about 10% of the product shelf life) for the product to arrive from the warehouse to the supermarket, and often more than 10 days pass before the product is available for sale. The producer replenishes their stocks of finished products from the production process, and the production of the quantity Q begins when the stocks fall to the level of s (reorder point), i.e., the manufacturer applies a (s, Q) stocking system. According to the collected data, no out-of-stock situations were recorded in this case. Both the producer and the supermarket hold larger stocks to meet market demand, which, along with the fact that there is no complete visibility of product age by location, leads to longer product retention in the chain and waste generation due to product expiration. Output results from the model were validated by managers of the participating companies.