Springer advanced planning in fresh food industries integrating shelf life into production planning

Advanced Planning
in Fresh Food Industries


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Matthias Lçtke Entrup

Advanced Planning
in Fresh Food Industries
Integrating Shelf Life
into Production Planning

With 63 Figures and 31 Tables

Physica-Verlag
A Springer Company


Series Editors
Werner A. Mçller
Martina Bihn
Author
Matthias Lçtke Entrup
Linienstraûe 71
10119 Berlin


Diss., TU Berlin, D83
ISSN 1431-1941
ISBN-10 3-7908-1592-6 Physica-Verlag Heidelberg New York
ISBN-13 978-3-7908-1592-4 Physica-Verlag Heidelberg New York
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Foreword

During the last three decades trade, industry and also academia became heavily
involved in the development primarily intended towards more effective planning
and control of logistical operations in supply chains. Lately, these approaches began to be directed towards fresh food supply chains. Competitive fresh food supply chains require that the aspects costs, quality, food safety and technology be
taken into account simultaneously in a multidisciplinary way. In recent years the
issue of food safety got large emphasis in government, industry and society (consumers). The introduction of the General Food Law by the EU from January 2005
on even put more emphasis on the issue of food safety.
It turns out that Advanced Planning and Scheduling Systems (APS) can play an
important and integrative role in supporting decision making activities in fresh
food supply chains by considering shelf life as an instrument to generate more
added value and food safety. Basically the work of Matthias Lütke Entrup is concentrated on two research questions:
x
x

Which requirements must APS systems cover in order to efficiently
and effectively support production planning in fresh food industries?
How can shelf life be integrated into production planning? How can
production planning contribute to optimizing shelf life output?

In his study the author shows how these questions should be answered adequately. His results and conclusions are of paramount importance for integrating
the issue of shelf life into production planning.
The study provides a wealth of insights and results which are significant both
from a practical as well as from an academic point of view. The research starts
with an overview of current APS systems and highlights the need of a new generation of planning software which aims at supporting decision making in supply
chain management. Although APS gain increasing acceptance in industry, a number of issues remain, in particular at the detailed planning and scheduling level,
which are not satisfactorily covered by the decision models to be found in the
standard APS software packages. This is truly the case for the fresh food industries. Undoubtedly, the most important planning issue regarding fresh food lies in
the consideration of shelf-life. So far, vendors of APS systems have taken many
efforts to consider shelf-life issues in their planning systems, however, without
covering all of the characteristics being important in Fresh Food Supply Chains
(FFSCs) and fresh food production systems. One of the main contributions of the
study by Matthias Lütke Entrup is a comprehensive analysis of the planning requirements of fresh food industries on one hand and the decision support offered


VI

Foreword

by typical APS systems on the other. Software packages from leading players in
the market are assessed looking at the scope of shelf life integration and its capabilities to generate plans that optimize shelf life output.
Based on the shortcomings of current APS systems, new quantitative planning
models are developed and resolved. These models consider shelf life planning
problems in specific fresh food industries (yogurt production, sausage production

and poultry processing). The models are based on the general block planning principle and are adapted to the needs of the specific fresh food planning applications.
Considerable care has been taken to obtain compact model formulations which
can be solved very efficiently by use of standard optimization software. Numerical
experiments demonstrate the applicability of the planning models in realistic industrial settings.
As a result, the author makes clear that suppliers of APS software are currently
unable to offer APS systems in which the integration of shelf life into production
planning has been dealt with adequately. Specifically, product freshness has been
modeled by the author as part of the optimization and not as a constraint within
the planning function. This is indeed a new and creative contribution of Matthias
Lütke Entrup to solving complex planning problems of considerable practical
relevance. The applications (case studies) have been selected carefully by the author in such a way that many other application fields in fresh food industries could
benefit from his results.
Prof. Dr. Paul van Beek
Prof. Dr. Hans-Otto Günther


Acknowledgement

This research could not have been written without the support of many people.
Therefore, I would like to thank a number of them for their support and contributions, knowing that the list is, of course, incomplete.
First of all, I am indebted to my academic advisors Professor Dr. Hans-Otto
Günther of the Chair of Production Management at the Technical University of
Berlin and Professor Dr. Paul van Beek of the Operational Research and Logistics
Group at the Wageningen University (NL). Professor Dr. Hans-Otto Günther
woke my interest in the field of Production Management and helped me to transform my ideas into a full research project. Similarly, I am thankful to Professor
Dr. Paul van Beek for his supervision of the work and his critical comments.
Working with both of them was a pleasure, they have always been accessible and
created a stimulating research environment. Additionally, I thank Professor Dr.
Kasperzak for assuming the chairmanship of the promotion committee.
I would also like to thank the entire team of the Chair of Production Management consisting of Hanni Just, Dr. Martin Grunow, Matthias Lehmann, Ulf Neuhaus, Martin Schleusener, and Onur Yilmaz for their helpfulness and the fruitful

discussions. Their comments proved to be very useful and resulted in several improvements. In addition, I am grateful to Thorben Seiler and Shuo Zhang for their
support regarding the development and implementation of the models.
Furthermore, I thank my employer A.T. Kearney for the possibility to conduct
this research and the continual support. In particular, I highly appreciate the contributions of Dr. Antje Völker, Jan van der Oord and Ferdinand Salehi as well as
of Dr. Peter Pfeiffer and all other colleagues of the Consumer Industries and Retail
Practice. Dr. Marianne Denk-Helmold and Judith Siefers deserve a special thanks
for carefully reading and correcting the manuscript.
The last words are dedicated to my family. I thank my parents for their encouragement and their trust in me during all the years. Finally, I thank Kathrin for her
backing and her care. She made me realize that there are other things in life than
yogurt, sausages and poultry.
May 2005

M. Lütke Entrup


Table of Contents

Foreword............................................................................................................... V
Acknowledgement ............................................................................................. VII
Abbreviations....................................................................................................XIII
1 Introduction ........................................................................................................ 1
1.1 Introduction to the Field of Research .......................................................... 1
1.2 Research Objectives .................................................................................... 2
1.3 Dissertation Outline..................................................................................... 3
1.4 Conclusion................................................................................................... 4
2 Advanced Planning and Scheduling Systems................................................... 5
2.1 Evolutionary Path of APS Systems ............................................................. 5
2.1.1 MRP I and MRP II ............................................................................... 5
2.1.2 Assessment of the MRP Planning Concepts ........................................ 8
2.1.3 Emergence of APS Systems................................................................. 9

2.2 Structure of APS Systems.......................................................................... 12
2.2.1 Overview............................................................................................ 12
2.2.2 Strategic Network Design .................................................................. 14
2.2.3 Demand Planning ............................................................................... 15
2.2.4 Supply Network Planning .................................................................. 17
2.2.5 Production Planning ........................................................................... 18
2.2.6 Production Scheduling ....................................................................... 19
2.2.7 Distribution Planning ......................................................................... 20
2.2.8 Transport Planning ............................................................................. 21
2.2.9 Available-to-Promise ......................................................................... 21
2.3 APS Systems Market Overview ................................................................ 23
2.3.1 Available Market Studies ................................................................... 23
2.3.2 Market Size and Segments ................................................................. 24
2.3.3 Major Providers.................................................................................. 25
2.3.4 Expectations for the Future ................................................................ 27
2.4 Implementation of APS Systems ............................................................... 27
2.4.1 Implementation Process Overview..................................................... 27
2.4.2 Project Definition ............................................................................... 28
2.4.3 Vendor Selection................................................................................ 30
2.4.4 Implementation .................................................................................. 31


X

Table of Contents

2.4.5 Implementation Risks ........................................................................ 32
2.5 Assessment of APS Implementations........................................................ 33
2.5.1 Benefits .............................................................................................. 33
2.5.2 Development Needs ........................................................................... 34

2.6 Conclusion................................................................................................. 35
3 Fresh Food Industries ...................................................................................... 37
3.1 Introduction ............................................................................................... 37
3.2 Definition and Segments ........................................................................... 37
3.3 Characteristics of Fresh Food Supply Chains............................................ 38
3.3.1 Structures of Fresh Food Supply Chains............................................ 38
3.3.2 Economic Characteristics and Developments .................................... 41
3.3.3 Technological Characteristics and Developments ............................. 47
3.3.4 Social/Legal Characteristics and Developments ................................ 50
3.3.5 Environmental Characteristics and Developments............................. 53
3.3.6 Summary ............................................................................................ 57
3.4 Characteristics of Fresh Food Production Systems ................................... 58
3.4.1 Overview............................................................................................ 58
3.4.2 Formulation........................................................................................ 59
3.4.3 Processing .......................................................................................... 60
3.4.4 Packaging........................................................................................... 61
3.4.5 Storage and Delivery.......................................................................... 62
3.4.6 Summary ............................................................................................ 63
3.5 Case Study 1: Yogurt Production .............................................................. 64
3.5.1 Market Segments and Case Study Overview ..................................... 64
3.5.2 Raw Milk Collection.......................................................................... 67
3.5.3 Raw Milk Preparation ........................................................................ 69
3.5.4 Fermentation ...................................................................................... 70
3.5.5 Flavoring and Packaging.................................................................... 71
3.5.6 Storage and Delivery.......................................................................... 72
3.6 Case Study 2: Sausage Production ............................................................ 72
3.6.1 Market Segments and Case Study Overview ..................................... 72
3.6.2 Input of Ingredients............................................................................ 75
3.6.3 Grinding and Mixing.......................................................................... 76
3.6.4 Chopping and Emulsifying ................................................................ 76

3.6.5 Stuffing and Tying ............................................................................. 76
3.6.6 Scalding ............................................................................................. 77
3.6.7 Maturing and Intermediate Storage.................................................... 78
3.6.8 Slicing and Packaging........................................................................ 78
3.6.9 Storage and Delivery.......................................................................... 79
3.7 Case Study 3: Poultry Processing.............................................................. 80
3.7.1 Market Segments and Case Study Overview ..................................... 80
3.7.2 Transport of Animals ......................................................................... 82
3.7.3 Stunning and Bleeding ....................................................................... 83
3.7.4 Scalding and Eviscerating.................................................................. 84
3.7.5 Chilling .............................................................................................. 84


Table of Contents

XI

3.7.6 Rough Cutting .................................................................................... 85
3.7.7 Fine Cutting........................................................................................ 86
3.7.8 Packaging ........................................................................................... 86
3.7.9 Storage and Delivery.......................................................................... 87
3.8 Conclusion................................................................................................. 87
4 The Fresh Food Industry’s Profile Regarding APS Systems........................ 89
4.1 Methodological Remarks........................................................................... 89
4.2 General Requirements ............................................................................... 90
4.3 Requirements for Strategic Network Design ............................................. 93
4.4 Requirements for Demand Planning.......................................................... 95
4.5 Requirements for Supply Network Planning ........................................... 100
4.6 Requirements for Purchasing & Materials Requirements Planning ........ 101
4.7 Requirements for Production Planning and Production Scheduling........ 103

4.8 Requirements for Distribution Planning .................................................. 109
4.9 Requirements for Transport Planning...................................................... 111
4.10 Requirements for Demand Fulfilment and Available-to-Promise ......... 114
4.11 Conclusion............................................................................................. 116
5 Shelf Life in Fresh Food Industries .............................................................. 117
5.1 Shelf Life of Food Products..................................................................... 117
5.1.1 Definition and Limiting Factors....................................................... 117
5.1.2 Determination of Shelf Life ............................................................. 119
5.1.3 Technological Shelf Life Extensions ............................................... 120
5.2 Shelf Life Characteristics of Case Study Products .................................. 121
5.2.1 Case Study 1: Shelf Life of Yogurt.................................................. 121
5.2.2 Case Study 2: Shelf Life of Sausages............................................... 122
5.2.3 Case Study 3: Shelf Life of Fresh Poultry........................................ 123
5.3 Shelf Life in Fresh Food Supply Chain Management.............................. 125
5.3.1 Literature Review............................................................................. 125
5.3.2 Role of Shelf Life in Fresh Food Supply Chains ............................. 127
5.4 Conclusion............................................................................................... 128
6 Shelf Life Integration in APS-Systems ......................................................... 131
6.1 Introduction ............................................................................................. 131
6.2 SAP APO................................................................................................. 131
6.2.1 System Overview ............................................................................. 131
6.2.2 Shelf Life Integration ....................................................................... 134
6.3 PeopleSoft EnterpriseOne........................................................................ 137
6.3.1 System Overview ............................................................................. 137
6.3.2 Shelf Life Integration ....................................................................... 139
6.4 CSB-System ............................................................................................ 140
6.4.1 System Overview ............................................................................. 140
6.4.2 Shelf Life Integration ....................................................................... 143
6.5 Summary and Conclusion........................................................................ 143

XII

Table of Contents

7 Shelf Life Integration in Yogurt Production ............................................... 147
7.1 Problem Demarcation and Modeling Approach ...................................... 147
7.2 Model Formulations ................................................................................ 152
7.2.1 Model 1: Model with Day Bounds................................................... 152
7.2.2 Model 2: Model with Set-up Conservation ...................................... 159
7.2.3 Model 3: Position Based Model....................................................... 163
7.3 Computational Results............................................................................. 171
7.3.1 Simultaneous Optimization of All Lines.......................................... 171
7.3.2 Line Decomposition Approach ........................................................ 173
7.3.3 Model Combination and “Pick-the-Best” Approach........................ 174
7.4 Conclusion............................................................................................... 177
8 Shelf Life Integration in Sausage Production.............................................. 179
8.1 Problem Demarcation and Modeling Approach ...................................... 179
8.2 Model Formulation.................................................................................. 183
8.3 Computational Results............................................................................. 191
8.4 Conclusion............................................................................................... 195
9 Shelf Life Integration in Poultry Processing................................................ 197
9.1 Problem Demarcation and Modeling Approach ...................................... 197
9.2 Model Formulation.................................................................................. 200
9.3 Computational Results............................................................................. 206
9.4 Conclusion............................................................................................... 209
10 Conclusions and Recommendations ........................................................... 211
10.1 Summary of Results .............................................................................. 211
10.2 Discussion ............................................................................................. 213
10.3 Recommendations for Further Research ............................................... 215

References.......................................................................................................... 217


Abbreviations

3PL
APO
APS
ATP
BBD
BOM
BSE
CAGR
CIP
CPFR
CPG
CRM
CTP
DC
DisP
DP
EAN
ECR
EDI
EDIFACT
ELSP
EPC
ERP
FFSC
GMP

HACCP
IFS
ISO
IT
KPI
LP
MDB
MILP
MPS
MSC
MTO

Third Party Logistics Provider
Advanced Planner and Optimizer
Advanced Planning and Scheduling
Available-to-Promise
Best-Before Date
Bill of Materials
Bovine Spongiform Encephalopathy
Compound Annual Growth Rate
Clean-in-Place
Collaborative Planning, Forecasting and Replenishment
Consumer Packaged Goods
Customer Relationship Management
Capable-to-Promise
Distribution Center
Distribution Planning
Demand Planning
European Article Number
Efficient Consumer Response

Electronic Data Interchange
Electronic Data Interchange for Administration, Commerce and
Transport
Economic Lot Scheduling Problem
Electronic Product Code
Enterprise Resource Planning
Fresh Food Supply Chain
Good Manufacturing Practice
Hazard Analysis Critical Control Point
International Food Standard
International Organization for Standardization
Information Technology
Key Performance Indicator
Linear Programming
Model with Day Bounds
Mixed Integer Linear Programming
Master Production Schedule
Model with Set-up Conservation
Make-to-Order


XIV

Abbreviations

MTS
OR
OV
P&MRP
PBM

PP
PP/DS
PS
QAS
RFID
ROI
SC
SCE
SCM
SCP
SKU
SND
SNP
SRM
TP
TP/VS
VMI
WWRE
XML

Make-to-Stock
Operations Research
Objective Value
Purchasing & Materials Requirements Planning
Position-Based Model
Production Planning
Production Planning / Detailed Scheduling
Production Scheduling
Quality Assurance System
Radio Frequency Identification Tag

Return on Investment
Supply Chain
Supply Chain Execution
Supply Chain Management
Supply Chain Planning
Stock Keeping Unit
Supply Network Design
Supply Network Planning
Supplier Relationship Management
Transport Planning
Transport Planning / Vehicle Scheduling
Vendor Managed Inventory
World Wide Retail Exchange
eXtensible Markup Language


1 Introduction

1.1 Introduction to the Field of Research
With an approximate turnover of € 100 bn., the food processing industry is one of
the major sectors of the German economy. Ca. 50% of this number is generated by
fresh food industries such as the meat, dairy, fish, fruit, vegetables, or bakery industry (Lebensmittel Zeitung 2001). Due to factors such as high variability of raw
materials, intermediate and final products, fluctuating prices, or variable processing times and yields, production planning in fresh food industries is generally a
challenging task.
In this environment, Advanced Planning and Scheduling (APS) systems can
constitute significant means of support for the planner. Driven by developments in
Supply Chain Management (SCM) and Information Technology (IT), APS systems are a shift of paradigm in production planning since they address material restrictions and capacity constraints simultaneously and not successively as Enterprise Resource Planning (ERP) systems implemented today by most companies.
Hence, APS systems help to avoid high amounts of work-in-progress, to increase
service levels, and to shorten planning times. Moreover, APS systems allow optimizing the entire supply network by integrating several production sites, distribution centers, suppliers and customers into one planning model. However, implementation numbers of APS systems in fresh food industries remain rather low,
because many important requirements of these industries are not yet sufficiently

covered.
One of the most distinctive factors to consider in fresh food production planning is the limited shelf life of the products. Shelf life restrictions directly influence scrap rates, out-of-stock rates in the retail outlets and inventory levels. Furthermore, consumers tend to buy the product that has the longest possible shelf
life. Being able to offer a longer shelf life than their competitors constitutes a pivotal competitive advantage for food producers. Hence, the provision of shelf life
functions is crucial for APS systems in order to succeed in the fresh food industry.
Yet, only a few authors have considered the integration of shelf life into production planning (see Chapter 5.3.1).


2

1 Introduction

1.2 Research Objectives
Therefore, the research will focus on two main research questions:
Research question 1:
Which requirements must APS systems cover in order to efficiently and effectively
support production planning in fresh food industries?
The scientific outcome of the first part of the thesis is a profile of three sample
fresh food industries (yogurt, sausages and fresh poultry) with regard to APS systems. These three case study industries cover the most important fresh food segments (dairy, processed and fresh meat). In addition, within each of the case study
industries, the product with the most challenging production environment has been
chosen. For each of the modules of an APS system, the fresh food specific requirements are analyzed and their importance for each of the three sample industries is assessed based on a rating score. This list of requirements constitutes an
important support for companies operating in fresh food industries. On the one
hand, the functional specifications for the planning systems can be defined more
easily and efficiently. In addition, the list can also be used to evaluate the capabilities of APS software and to decide which software to implement. From a scientific
point of view, the structured approach to developing the list of requirements can
be used as a guideline for other industries. In literature, fresh food industries have
not been subject to intense research regarding APS systems. Most contributions
dealing with APS systems are concerned with the automotive or the semiconductor industry when looking at discrete parts manufacturing (see for example
Schmelmer and Seiling 2002; Schneeweiss and Wetterauer 2002; Zeier 2002d) or
with the chemical industry when looking at process industries (see for example
Hurtmanns and Packowski 1999; Franke 2002; Kallrath 2002; Mekschrat 2002;

Richter and Stockrahm 2002). Some research is also related to the food industry in
general (e.g. Wagner and Meyr 2002), however no author looks specifically at the
requirements of fresh food industries.
Research question 2:
How can shelf life be integrated into production planning? How can production
planning contribute to optimizing shelf life output?
The outcomes of the second part of the thesis are Mixed Integer Linear Programming (MILP) models that integrate shelf life into production planning and the
solution of those models. The models are built around the case studies from the
three sample fresh food industries and will support providers of APS systems to
develop tools that integrate shelf life. With respect to literature, only very few authors integrated the shelf life of the products into their models. The main contributions are concerned with inventory models for deteriorating items or with adding a
shelf life constraint to the Economic Lot Scheduling Problem. However, the major
drawbacks of these models are that production aspects such as sequencedependent set-up times, production on multiple lines or production of multiple


1.3 Dissertation Outline

3

products are often neglected. Furthermore, product freshness is only considered as
a constraint and is not part of the optimization. The models developed for the three
case study industries address these issues.

1.3 Dissertation Outline
According to the two research questions, the dissertation is divided into two sections. The first section (Chapters 1 to 4, see Fig. 1) aims at answering the first research question and concludes with a comprehensive list of requirements. The
second section (Chapters 5 to 9) covers the integration of shelf life into production
planning.
After having introduced the research subject, the dissertation starts with an
overview of the current status of APS systems (Chapter 2). The most important
functions of each of the software modules are described, and the level of support
for the planner is evaluated. The assessment relies on a literature review of APS

systems and of production planning and scheduling, as well as on descriptions of
selected APS systems. This analysis provides an understanding of what these APS
systems can offer.
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