Inventory model for deteriorating items with expired time in lost-sales probabilistic demand (Pharmacy case study)

Inefficient conditions often encounter on procurement and inventory system of medical items with the process of deterioration during lifetime, which is shown by the number of unsold expired items. The discovery of excess expired items is an indication that the inventory policy was not carried out properly. In the micro, small, and medium business (UMKM) in Indonesia, the loss from unsold expired items due to the improper procurement planning significantly affects the inventory turnover and subsequently decrease the profitability shown on Return on Investment (ROI). To improve these conditions, we develop an algorithm for an inventory model to determine the optimal procurement decision on a pharmacy inventory system for items with expired date. Procurement decision consists of the lot size of an order, the duration between orders, and reorder point. The demand characteristic is probabilistic with the assumption of lost sales. We use basic Wilson inventory model and Hadley-Whitin algorithm by taking into account the expiration process in the developed algorithm. Some results of the algorithm is the decrease of the number of expired materials, the equation of duration between orders, total cost of inventory, using the enumeration algorithm for the optimal reorder point. The proposed algorithm brings on a reduction of total cost of inventory up to 44.61% from the traditional approach.