Lowalekar & Ravichandran, 2017

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Intl. Trans. in Op. Res. 24 (2017) 1561–1586 RESEARCH
DOI: 10.1111/itor.12189
A combined age-and-stock-based policy for ordering blood

units in hospital blood banks
Harshal Lowalekara,b and N. Ravichandranc
a
Operations Management and Quantitative Techniques, Indian Institute of Management Indore, Indore, India
b
Information Systems, W.P. Carey School of Business, Arizona State University, Tempe, Arizona
c
Production and Quantitative Methods, Indian Institute of Management Ahmedabad, Ahmedabad, India
Received 25 March 2014; received in revised form 17 May 2015; accepted 19 May 2015
Abstract
This paper analyses the performance of an ordering policy for hospital blood banks (HBBs) that takes into
account the information regarding the on-hand stock along with the remaining life of blood products. The
blood items are assumed to start aging as soon as they have been collected. We develop a simulation model to
show that the combined age-and-stock-based policy would outperform some of the popular periodic reviews
and continuous review policies in controlling total costs by about 5% on an average basis. Our results show
that the suggested policy will reduce the total operational cost of managing platelets, which have a very short
shelf life, by about 27% at a real-life HBB. The policy will also lead to about 7% reduction in the total cost of
the negative blood groups, which are characterized by extremely erratic demand patterns. The implementation
of the ordering policy will help HBBs to reduce their operational costs while ensuring a minimum desirable
level of the availability of critical blood products.
Keywords: blood inventory; ordering policy; hospital blood banks
1. Introduction
A typical hospital blood bank (HBB) meets its blood requirements by ordering blood items at regular
intervals from a regional blood bank (RBB). The ordered items are not received immediately; there
is usually a time difference between placing an order and physically receiving it (known as lead
time, L). If the blood bank does not have sufficient stock to meet the incoming demand during
the lead time, shortage can occur. Shortage of blood units is a very serious problem since it can
cause delay in surgeries or even death. The tendency to order in large quantities to avoid possible
shortages, though, may not be quite effective in the case of blood products as they have limited a
limited shelf life. Overordering will increase the overall wastage of blood units, which can have grave
implications. Since the blood supply in a region is usually limited, wastage at one blood bank can
potentially create a shortage at another blood bank. It is therefore extremely important for a blood

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1562 H. Lowalekar and N. Ravichandran / Intl. Trans. in Op. Res. 24 (2017) 1561–1586
bank to determine when to order and how many items to order each time an order is placed so as
to keep blood shortage and wastage in control.
The choice of an ordering policy at any HBB is usually based on cost and convenience consid-
erations. Some HBBs prefer to order at regular intervals (periodic review), while others prefer to
order based on their stock levels (continuous review). In some cases, HBBs even employ different
ordering policies to manage different items such as periodic review policies for items with longer
shelf lives such as red blood cells (RBCs), plasma, and cryoprecipitate and continuous review poli-
cies to manage highly perishable items such as platelets. These traditional policies, however, have
not been found to be very effective in managing inventory of blood items since these policies were
not designed for perishables in the first place. In order to incorporate the perishable nature of blood
products, an ordering policy at an HBB must take into account not only the on-hand stock but also
the age of the blood units. This paper presents one such policy that can be used to order blood items
at HBBs. The major contributions of this research are as follows:
r We suggest a combined age-and-stock-based ordering policy for HBBs, called (Q, r, t) policy (this
and other policies will be introduced in Section 3.4), which takes into account the information of
the on-hand stock level along with the remaining life of blood products while making ordering
decisions.
r We consider the actual aging phenomenon1 for blood products where they start aging as soon as
they have been collected. This phenomenon has not been studied adequately in the literature.
r Using a simulation model, we study the sensitivity of the optimal ordering policy parameters with
respect to various system variables such as cost of ordering, cost of wastage, product shelf life,
and lead time.
r We compare the total optimal cost under the (Q, r, t) policy with two classical periodic review
policies ([R, T] and [s, S, T]), two periodic review policies that consider perishability (modified es-
timated withdrawal and aging [EWA] and old inventory ratio [OIR]), and one classical continuous
review policy ([Q, r]) for a generic perishable item for various fill-rate (FR) constraints.
r We also test, using real-life data, the efficacy of the suggested policy in managing inventory of
blood products such as whole blood (WB), RBCs, and platelets of various blood types at an
Indian blood bank.
The major findings of our research are summarized below:

r Our results show that the (Q, r, t) policy would outperform some of the popular periodic and
continuous review policies in controlling the shortage, wastage, and total cost at a blood bank.
The improvement of the suggested policy over the next best policy was found to be as high as
16% in some cases; the average improvement being around 5%.
r We show, using the real-life example, that the suggested policy can be extremely effective for
managing blood products that have a short shelf life (such as platelets) or have an extremely
unpredictable demand (such as negative blood groups). Our results show that by implementing
1
As opposed to the special aging behavior in which a new batch is assumed to begin aging only after the previous
batches have been consumed either due to demand or outdating. This assumption has been very popular for modeling of
continuous review perishable systems (see Ravichandran, 1995 and Tekin et al., 2001).

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H. Lowalekar and N. Ravichandran / Intl. Trans. in Op. Res. 24 (2017) 1561–1586 1563
the (Q, r, t) policy an HBB can reduce its operational costs for platelets by at least 16% (average
improvement) and for negative blood groups by at least 7% (average improvement).
r The incremental benefit of keeping track of age along with the stock level, however, was found
to be not so significant for positive blood groups, which last for much longer duration and have
a stable demand.
The next section provides a brief review of the literature on ordering policies for perishables.
2. Literature review
An extensive survey of literature on managing inventory of perishable items can be found in Nahmias
(1982), Raafat (1991), Goyal and Giri (2001), Karaesmen et al. (2011), and Bakker et al. (2012).
A more specific review on the management of blood inventory is presented in Elston and Pickerel
(1970), Prastacos (1984), Beliën and Forcé (2012), and Lowalekar and Ravichandran (2014, 2015).
Based on the review of literature, one can classify the ordering policies for perishables into two major
categories: periodic review and continuous review policies. A brief discussion of the two policies is
provided below.
r Periodic review policies, where units are ordered at a fixed interval, are quite popular among
blood banks mainly because of their operational convenience. Several variations of periodic
review policies can be found in the existing literature on perishable products. Nahmias and
Pierskalla (1973) studied the nature of the optimum ordering policy for a product that lasts for
two periods facing stochastic demand, under the assumption of zero lead time. Nahmias (1975)
and Fries (1975) extended the analysis done by Nahmias (1973) for a product that lasts for m
periods. It was shown in these three studies that the optimal order quantity in a given period
is a function of distribution of batches of various ages while the decision of whether or not to
order is a function of just the total stock. Since determining the optimal order quantity became
difficult as the number of batches increased, the latter research focused more on studying single
critical number policies where the order quantity was a function of only a single number (Cohen,
1976; Chazan and Gal, 1977; Cohen and Prastacos, 1981; Nandakumar and Morton, 1993).
Nahmias (1977) developed bounds for expected outdating for an approximate critical policy for
a perishable item with stochastic lead time. Chiu (1995) provided a heuristic analysis of an (R,
T) policy with backlogging with positive lead times. Recent literature on periodic review policies
has mainly looked at the modifications of classical order-up-to-level policies and single critical
number policies. Several variations of these policies were applied to platelets, which are highly
perishable. Haijema et al. (2007, 2009) and van Dijk et al. (2009) showed that variations of simple
order-up-to-level policies were quite effective in managing the inventory of platelets. Lowalekar
and Ravichandran (2010) showed that a cutoff-level policy, which is a modification of the classic
(R, T) policy, was effective in controlling total costs in blood banks when the supply quantity
was not deterministic. Zhou et al. (2011) studied an order-up-to-level policy for platelets under
two replenishment modes: (a) regular replenishment at the start of the ordering cycle and (b)
optional expedited replenishment in the middle of an ordering cycle. Few periodic review policies
also considered perishability of the items explicitly while making ordering decisions. Minner and

C 2015 The Authors.
Transchel (2010) described a method to determine dynamic order sizes for perishable items under
service-level constraints. Broekmeulen and van Donselaar (2009) suggested a new policy (EWA)
that is similar to an order-up-to-level policy except that the order quantity in each period is
inflated with an amount equal to the expected outdating from the current stock in future periods.
Duan and Liao (2013) suggested an OIR policy where the order quantity is inflated by the size of
the “old stock” if the ratio of old to new stock exceeds a certain threshold level (δ).
r Continuous review policies have been shown to be much superior in controlling the total cost
as compared to periodic review policies. In a continuous review system, the orders are placed
based on the on-hand stock level of products (see Kalpakam and Arivarignan, 1988; Kalpakam
and Sapna, 1994, 1996; Liu and Lian, 1999; and Berk and Gürler, 2008). Weiss (1980) showed
the optimality of a continuous review (0, S) policy under the assumption of zero lead time.
Ravichandran (1995) developed expressions to determine the total cost for a continuous review
(Q, r) policy for a positive lead time and Poisson demand. He assumed a special aging behavior for
the perishable item where units in a batch start aging only after the units from the previous batch
have been exhausted. This assumption made it possible to develop an analytical model of the
continuous review system using the theory of regeneration points. Tekin et al. (2001) introduced a
modified lot-size reordering policy, known as (Q, r, T) policy, where the ordering is done based on
the age level along with the stock level of perishable products. They showed that this policy was
superior to a classical continuous review policy, where only the stock position was monitored,
in controlling total costs. They too considered the special aging process for perishable products
similar to Ravichandran (1995).
The special aging behavior is observed in some perishable products such as composite fabrics for
aircraft manufacturing, food items in supermarkets, and so on, which age only after they have been
moved to shelves from storage spaces (Tekin et al., 2001). But this aging behavior is not applicable
in case of blood products, which start aging as soon as they have been collected. Therefore, in this
paper, we develop an ordering policy under the assumption of actual aging process, which is more
appropriate in the context of blood banks. We build on the ideas presented in Tekin et al. (2001)
for a generic perishable product and modify them, both in terms of the ordering policy and aging
behavior, so that they can be applied in the context of blood products. The assumption of actual
aging, however, restricts us to apply the ideas of regeneration points used by Ravichandran (1995)
and Tekin et al. (2001), which, in turn, limits our ability to model the problem analytically. Since the
assumption of actual aging makes analytical models intractable (see Ravichandran, 1995), we use
simulation as a tool for an analysis. Simulation models (Rabinowitz, 1973; Vrat and Khan, 1976;
Cohen and Pierskalla, 1979; Haijema et al., 2007, 2009; van Dijk et al., 2009; Katsaliaki et al.,
2009; Mustafee et al., 2009; Lowalekar and Ravichandran, 2010, 2011; Katsaliaki and Mustafee,
2011) have been immensely used in blood banking to test the effects of various system variables and
policies on the overall performance of a blood bank. Even though simulation studies suffer from
the problem of lack of generalizability of results (Cohen and Pierskalla, 1979), they can incorporate
complexities of a real-life situation such as blood banks (e.g., multiple blood groups, intergroup
substitutability, componentizing, cross-matching, inter-blood bank transfers, etc.), which is not
possible using mathematical models. Due to their intractability, mathematical models are often
rendered useless in complex systems. Simulation methodology is usually the last resort in gaining
meaningful insights into managing such systems. Recent studies by Rytila and Spens (2006), and

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Katsaliaki and Brailsford (2007) and Mustafee et al. (2009) have demonstrated the application of
discrete-event-based simulation methodology in improving the efficiency of the entire supply chain
of blood products in Finland and England, respectively.
There are two different ways in which the existing literature addresses the stockout situation.
Some authors assume that the unmet demand is lost (van Zyl, 1964; Nahmias and Wang, 1979;
Schmidt and Nahmias, 1985; Kalpakam and Sapna, 1994, 1996; Ravichandran, 1995; van Donselaar
et al., 1996; Williams and Patuwo, 1999, 2004; Kalpakam and Shanthi, 2001; Tekin et al., 2001;
Broekmeulen and van Donselaar, 2009; Sheopuri et al., 2010; and Duan and Liao, 2013), while others
assume that it is backlogged (Nahmias and Pierskalla, 1973; Cohen, 1976; Nahmias, 1976, 1977;
Liu and Lian, 1999). In this research, we assume that all the unmet demand is lost.2 In case of many
perishable products, such as blood items, it is difficult to estimate the cost of shortage. A shortage of
blood units can, in severe cases, even be fatal. This makes it extremely difficult to quantify the cost
of shortage. It is quite prevalent in the literature to assume a service-level constraint, which specifies
the maximum amount of shortage permitted in the system, as a proxy of shortage costs. Minner
and Transchel (2010) consider two types of service-level constraints in their model: (a) nonstockout
probability and (b) fill rate (FR) constraint. Tekin et al. (2001) and Duan and Liao (2013) assume fill
rate (FR) constraint in lieu of the cost of shortage. For the purpose of this research, we assume a fill
rate (FR) constraint that specifies the maximum permissible fraction of lost sales of the total demand.
It is interesting to note that while there are quite a few papers on ordering (producing) platelets
(Deuermeyer, 1979; Arun, 1988; Bhattacharya, 1995; Haijema et al., 2007, 2009; van Dijk et al.,
2009; Lowalekar and Ravichandran, 2011; Zhou et al., 2011; Duan and Liao, 2013), the problem
of ordering RBCs (Kopach et al., 2008), especially of rare group types, has not gathered much
attention in the existing literature. Since the demand pattern of rare blood types is extremely erratic
(marked by a high SD of interarrival time of demand), the traditional ordering policies are not
expected to perform well in controlling shortage and wastage of such items. It is quite prevalent
among blood banks to observe wastage of a rare blood type due to no demand for the entire time
the item is stored in the inventory. This is often followed by a demand that results in a shortage.
Thus, collecting a large number of units of rare blood types can actually be disastrous for a blood
bank since it can experience both wastage and shortage due to the erratic demand pattern of such
products. Moreover, the traditional approach of aggregating the demand information for all the
blood types in order to determine the order (production) quantities (Lowalekar and Ravichandran,
2010, 2011) can have serious implications for rare blood types. In this research, we analyze all the
blood types separately and identify suitable ordering policy (and its parameters) for each of them
using our simulation model.
3. Model description and assumptions
In the following subsection, we define some basic terms related to the management of a blood bank
inventory. Section 3.2 provides a generic description of the simulation model developed in the study,
2
It is important to note that the assumption of lost sale and not that of backlogged demand has been made merely
to enable comparison with other policies (Tekin et al., 2001; Broekmeulen and van Donselaar, 2009; Duan and Liao,
2013), discussed later in the paper, which also assumed lost sales’ case. Our model is generic enough to handle the case of
backlogged demand without any difficulty.

C 2015 The Authors.
and Section 3.3 describes the assumptions used for the modeling of problems of a blood bank. The
simulation model is used to compare various ordering policies (including the proposed policy) that
are described in Section 3.4.
3.1. Definitions
Shelf life (τ ): The shelf life of a given blood item is the effective time period during which the blood
item can be safely used for the transfusion after it has been collected, processed, and stored at a
blood bank. The shelf life of RBCs is typically one month. Plasma can last up to one year when
stored in frozen state. Platelets are highly perishable and survive only up to five days.
Lead time (L): Lead time is the time delay between the placement of an order of blood item(s)
by an HBB and the actual receipt of the blood item(s) from the RBB. It is during this time that
a potential shortage can occur at the HBB if the stock level is not sufficient to meet the incoming
demand.
Fill rate (FR): It is the fraction (or percentage) of total demand of a blood item that the HBB is
able to satisfy from its stock during a given time horizon (typically a month or a year). A 90% fill
rate (FR) for a given product at the HBB implies that it was able to satisfy 90% of the incoming
demand from its existing stock of that product. The higher the FR, the lesser the shortage is.
Fraction of unmet demand (α): It is the fraction of the total demand of a blood item that the
HBB is not able to satisfy from its stock during a given time horizon (clearly, α = 1 – FR). A 90%
FR for a given product at the HBB means the fraction of unmet demand (α) for that product was
0.10 (10%).
3.2. Model description
A discrete-event simulation model is developed for the purpose of this study using C language. The
model can be used to study the performance of a given ordering policy by changing the various
blood bank variables, which act as an input to the model. The simulation model can be customized
for a given blood bank by providing the following major inputs:
r Life of the blood product (average or distribution).
r Average demand rate (and the demand distribution).
r Cost of one-time ordering from the RBB.
r Lead time between order placement and order receipt at the blood bank (average or distribution).
r Cost of wastage per unit of a given item (rare blood group types may be considered too valuable
to be wasted).
r Cost of holding one unit in inventory per unit time (holding costs may be negligible in a blood
bank context).
r Minimum fill rate (FR) requirement for the given item (high fill rate [FR] criteria for critical
products).
r Age of incoming units from the RBB (average or distribution).
r Ordering policy along with its parameters.

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The model can be applied to a wide variety of blood banks by making suitable changes in its
structure and the input parameters.
3.3. Model assumptions
For the purpose of this research, we make the following assumptions3 :
(1) The product has a shelf life of τ units of time. One unit of time can be anything; a day, week,
month, or year. Thus, if one unit of time is defined as one day then the life of platelets can
be assumed to be five units of time; if one unit of time is defined as one week then the life of
RBCs can be assumed to be approximately four units of time. Moreover, we also assume that
all the units received in an order have the same age (Ravichandran, 1995; Tekin et al., 2001).
(2) The demand distribution has been assumed to be Poisson distribution (similar to Tekin at al.,
2001; Duan and Liao, 2013). The demand rate of the product during the ordering period is λ
units per unit time. Thus, if the unit of time is defined as one day and 150 units are demanded
per month then the demand rate for the product is five units per unit time.
(3) The time (in units) between placing an order and receiving it, called lead time L, is positive
and fixed.
(4) A fixed cost of ordering K is incurred each time the HBB places an order irrespective of the
size of the order.
(5) The HBB incurs a cost of holding h for each unit that is held in inventory per unit time.
(6) The cost of wastage p is charged for each unit that outdates in the inventory.
(7) All the demand that is not satisfied from the inventory is assumed to be lost and there is no
direct cost of not meeting the demand. Instead, we assume that there is minimum fill rate (FR)
requirement, which necessitates the fraction of unmet demand to be less than a prespecified
value α. Thus, α level of 0.05 corresponds to satisfying at least 95% fill rate (FR) of the demand
during a given time horizon.
(8) It is assumed that there cannot be more than one outstanding order in the system at any point
in time. We thus exclude those cases where a new order is placed even before the previous order
has been physically received.
(9) In contrast with some special aging behavior that assumes that the items in the new batch start
aging only after the previous batches have been exhausted (see Ravichandran, 1995; Tekin
et al., 2001), we assume that the aging of units in a batch starts as soon as the batch arrives in
the inventory irrespective of the presence or absence of an older batch of the same item.
(10) The units are issued in first-in-first-out (FIFO) order.
The total cost in the system is the sum total of the cost of ordering, holding, and wastage. We
minimize the total cost per unit time (average), denoted by TC, for a given policy subject to a
minimum fill rate (FR) requirement constraint (α).
3
The basic assumptions (see assumptions 1–8), notation, and values of test parameters (Section 4.1) in this paper are
intentionally kept the same as those used by Tekin et al. (2001). This will allow the reader to draw comparisons between
the performance of the suggested policy and the modified lot size reordering policy by Tekin et al. (2001) under the
assumption of actual (assumption 9) and special aging processes, respectively.

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3.4. Ordering policies
For the purpose of this study, we consider a total of six policies: four periodic review policies
([R, T], [s, S, T], modified EWA, and OIR), one continuous review policy ([Q, r]), and the suggested
combined age-and-stock-level policy ([Q, r, t]). Two of the periodic review policies (modified EWA
and OIR) adjust their order quantities at the start of each cycle to account for the outdating of items
during the cycle. For the four periodic review policies, our model does not require the life of the
item to be an integral multiple of the time interval between two consecutive reviews; thus allowing
the items to expire between the ordering cycles. Also, the assumption 8 in Section 3.3, which allows
only up to one outstanding order at any time, ensures that for the periodic review policies the time
interval between two consecutive reviews is greater than the lead time (this is generally the case in
blood banks). The six policies are described below in detail.
Policy 1: classical order-up-to-level policy ([R, T] policy)

Under this policy, an order is placed if the total stock4 at the time of order placement is less than
a prespecified order-up-to-level (R; see Chiu, 1995). The size of the order is equal to the difference
between the order-up-to-level and total stock at the time of the order placement (I). The time
interval between two consecutive reviews is T. The time difference between the order placement and
order receipt is L.
The policy works as follows:
If I < R, then order Q = R − I, otherwise do not order,
where I = total stock, R = order-up-to-level in units, and Q = order quantity in a given cycle.
It is clear that the order quantity can vary from one period to another depending upon the total
available stock with the blood bank. Also, the classical order-up-to-level policy does not directly
consider the aging of items while making ordering decisions.
Policy 2: (s, S, T) policy

This policy is a generalized version of the classical (R, T) policy except that under this policy an
order is placed only when the total stock at the time of order placement is less than a certain
threshold value (s; see Scarf, 1959). The order size in that case is equal to the difference between the
target inventory level (S) and the total stock at the time of order placement (I). The time interval
between two consecutive reviews is T. The time difference between the order placement and the
order receipt is L.
The policy works as follows:
If I < s, then order Q = S − I, otherwise do not order,
where I = total stock, s = stock-level threshold, S = target inventory level in units, and Q = order
quantity in a given cycle.
4
Assumption 8 in Section 3.3 allowing only up to one outstanding order at any time essentially translates to T > L. Due
to this, the inventory position (I = inventory on hand + incoming orders) at the time of the order placement is nothing
but the total on-hand stock (since incoming orders = 0).

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Policy 3: modified EWA policy
The original EWA policy was suggested by Broekmeulen and van Donselaar (2009). The modified
EWA policy is similar to an (R, T) policy except that the order sizes are corrected for the expected
amount of perishing during the ordering cycle. The modified EWA policy used in this research
works as follows:
If I − E (O) < R, then order Q = R − I + E (O), otherwise do not order,
where I = total stock, R = order-up-to-level in units, Q = order quantity in a given cycle, and E(O)
= expected outdating in the cycle.
The procedure to compute E(O) during an ordering cycle is as follows. Let us denote the time at
the start of a given ordering cycle by t0 and the time of expiry of the oldest stock (of size xoldest ) in
the system by texpiry . Then, two cases can occur during the ordering cycle:
1. texpiry < t0 + L (outdating is possible before the start of the next ordering cycle)
d = xoldest −1

E (O) = xoldest − d p(d ),
d=0
where xoldest = oldest stock (in units) at time t0 , d = demand during interval texpiry − t0 , p(.) =
probability density function (pdf) of demand during interval texpiry − t0 .
Since the demand has been assumed to follow a Poisson distribution with rate λ, the expected
outdating during the current cycle can be written as the following:
d = xoldest −1 d
−λ texpiry −t0 λ texpiry − t0
E (O) = xoldest − d e .
d!
d =0
On simplifying,

E (O) = xoldest F xoldest − 1 − λ texpiry − t0 F xoldest − 2 ,
where F(.) = cumulative distribution function (cdf) of demand during interval texpiry − t0 .
2. texpiry ≥ t0 + L (outdating is not possible before the start of the next ordering cycle)
E (O) = 0.
Thus, using the expressions given above one can compute the expected outdating (and thus inflate
the order amount by the same amount) at the start of every cycle.
Policy 4: OIR policy

OIR policy was suggested by Duan and Liao (2013). This policy is similar to (R, T) policy except
that the order quantity is inflated by the size of the “old stock” if the ratio of old to new stock
exceeds a certain threshold level (δ) at the time of the order placement. The way “old stock” is
defined can be subjective (Duan and Liao, 2013). For the purpose of this research, we define “old
stock” as the stock that will expire before the start of the next ordering cycle.

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Let us denote the time at the start of a given ordering cycle by t0 and the time of expiry of the
oldest stock (of size xoldest ) in the system by texpiry . Then, two cases can occur during the ordering
cycle:
1. texpiry < t0 + L
Old stock = xoldest ,
2. texpiry ≥ t0 + L
Old stock = 0.
The OIR policy works as follows:
If I < R then,
If old stock
I
≥ δ, then order Q = R − I + oldstock;
else, order Q = R − I;
else, do not order,
where I = total stock, Q = order quantity in a given cycle, δ = threshold ratio.
The threshold ratio (δ) is also optimized along with R and T in the simulation model.
Policy 5: classical continuous review (Q, r) policy

Under this policy an order of size Q units is placed as soon as the inventory level drops to r units
(see Ravichandran, 1995). Potential shortage can occur during the time interval between the point
of order placement and order receipt. The classical continuous review policy has been shown to
perform better than the periodic review policies in case of nonperishables but the optimality of a
continuous review (0, S) policy has been established for perishables only when the lead time was
assumed to be zero (see Weiss, 1980). No results exist for the optimality of a continuous review
policy for perishables when the lead time is positive.
Policy 6: combined age-and-stock-based ordering policy

The proposed combined age-and-stock-based ordering policy, also referred to as (Q, r, t) policy, is
explained below.
(Q, r, t) policy: A replenishment order of size Q units is placed either when the total stock of
the item drops to r units or when t units of time have elapsed since the receipt of the last order,
whichever occurs first.
Because the time elapsed since the receipt of the last order is the same as the age of the youngest
batch in the system (for t τ ),5 the policy can be rewritten as follows.
(Q, r, t) policy: A replenishment order of size Q units is placed either when the total stock of the
item drops to r units or when the youngest batch in the stock has aged t units of time, whichever
occurs first.
The set of decision variables under the (Q, r, t) policy consists of three variables Q, r, and t, where
Q denotes the order quantity, r denotes the stock-level threshold, and t denotes the age threshold
5
t > τ is nothing but the classical (Q, r) policy.

C 2015 The Authors.
Fig. 1. Inventory behavior for (Q, r, t) policy.
for reordering. (Q, r, t) policy is a variation of the modified lot-size reordering policy by Tekin
et al. (2001) under the assumption of actual aging process and can be applied to a wide range of
perishable products including blood and its components.
The inventory behavior under the suggested policy has been shown in Fig. 1. During the cycles
of high demand, orders are placed based on the stock-level threshold (r), similar to the classical
continuous review (see cycle 1 in Fig. 1). During the cycles of low demand, though, it will take
longer for the stock to reach the stock-level threshold (r), which will delay the order placement.
This could result in shortage since the existing stock may perish before the arrival of the new order.
Therefore, in low-demand cycles, orders are placed based on the age threshold (t) to minimize the
chances of a stockout before the arrival of the next order (see cycles 2 and 3 in Fig. 1).
It is worthwhile to note that there could be multiple batches at a given moment if the age threshold
(t) is small. The suggested policy, however, tracks only the age of the youngest batch. The idea of
ordering based on the age of the youngest batch stems from the fact that the youngest batch is the
one that would finish last in a FIFO system.6
The analytical modeling of the (Q, r, t) policy becomes intractable due to the assumption of
actual aging behavior. Unlike Ravichandran (1995) and Tekin et al. (2001), the points at which the
stock level reaches Q units do not constitute regenerative epochs in our process. This means that
the information of past history is required to make predictions beyond the point at which the stock
6
Assumption 1 in Section 3.3 may not be always true in reality. In fact, the units delivered by RBB in an order will almost
always be of different ages. This, however, should not affect the nature of (Q, r, t) policy since the age threshold (t) is
measured from the time of receipt of the last order. One can, though, expect the optimal policy parameters (Q*, r*, and
t*) to change depending on the age distribution of the incoming units.

C 2015 The Authors.
level reaches Q. This is because the remaining age of the Q units can be less than τ if there are some
remaining items from the previous batch(s). This would require to know how the order was placed
in the previous cycle (based on r or t), which, in turn, depends on the total stock at the start of
previous cycle (when the order of size Q was received) and so on. Hence, a simulation approach
is adapted to understand the behavior of the (Q, r, t) policy in the rest of the paper. A simplified
simulation flow diagram for the (Q, r, t) policy is shown in Fig. 2.
4. Experimental results
In this section, we discuss the results of the sensitivity analysis and provide a comparison of the
suggested policy with the other five policies using the simulation model. A real-life application of
the suggested policy is also demonstrated.
4.1. Test parameters
In order to perform a sensitivity analysis of the new ordering policy with respect to the various
system parameters, we take a case of a general perishable product. The choice of a general perishable
product instead of any specific blood product (such as RBCs, platelets, or plasma) eliminates the
need for testing the performance of the policy for all the products individually.
The range of system parameters for the purpose of our experiments (see Table 1) is chosen in the
given manner to represent a wide variety of cases. The values of test parameters are intentionally
chosen to be generic enough so that the same analysis can be extended to a variety of perishable
products with different lifetimes. For the purpose of finding the optimal ordering policy parameters
for the (Q, r, t) policy, the optimization routine of the model uses a modified exhaustive search
heuristic (see Appendix).
4.2. Sensitivity of policy variables
The optimal ordering policy parameters (Q*, r*, and t*) are determined by a complex interaction
of the system parameters (α, K, p, τ , L, λ, and h). The results of sensitivity analysis obtained from
the simulation model (run length 100,000 days) are shown in Tables 2 and 3. Few important results
are summarized below7 :
7
Even though the inventory policy and aging behavior are different, the nature of the observations 1–5 obtained under
our policy is similar to the one mentioned in Tekin et al. (2001). The optimum cost values, however, are higher under
actual aging process as compared to the special aging process. It is found that the total average cost rate under actual
aging process differs significantly (almost 1.5 times) from that under the special aging process at higher wastage costs.
The optimal order quantity (Q*) is usually lower under the actual aging assumption as compared to the special aging
assumption. The average cost is increasing in lead time and is significantly higher under the actual aging assumption. The
difference between the two generally diminishes with the increase in the life of the item or relaxation in the FR constraint.
Most of these differences can be explained by a shorter effective life of the items under the actual aging behavior. For
point-by-point differences between actual aging and special aging processes, the readers are suggested to compare Tables
2–4 in this research with the Tables 2 (p. 317), 3 (p. 318), and 5 (p. 320) in Tekin et al. (2001).

C 2015 The Authors.
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Fig. 2. Simulation flow diagram for (Q, r, t) policy.

H. Lowalekar and N. Ravichandran / Intl. Trans. in Op. Res. 24 (2017) 1561–1586

Table 1
Test parameters
Parameter Symbol Values tested

Permissible fraction of unmet demand α 0.005, 0.01, 0.02, 0.05, 0.1
Ordering cost K 50, 100
Wastage cost P 1, 10, 50, 100
Shelf life τ 2, 4
Lead time L 0.5, 1, 1.5
Demand λ 5 (Poisson distribution)
Holding cost h 1
Table 2
Sensitivity results for (Q, r, t) policy with respect to ordering cost (K), lifetime (τ ), wastage cost (p), and fill rate (FR)
requirement (α)
p=1 p = 10 p = 50 p = 100
α Q* r* t* TC* Q* r* t* TC* Q* r* t* TC* Q* r* t* TC*
Ordering cost K = 50
Shelf life 0.005 14 8 0.95 38.82 11 9 0.8 58.47 8 7 0.27 116.3 8 7 0.27 184.11
τ =2 0.01 14 7 1 37.18 11 8 0.84 53.80 8 7 0.34 101.6 8 7 0.36 150.04
0.02 13 6 1 35.69 11 7 0.96 48.67 8 7 0.46 85.45 7 6 0.25 124.73
0.05 12 3 1 33.52 9 6 0.95 42.74 7 6 0.47 64.78 7 6 0.47 86.97
0.1 11 2 1.05 31.48 9 4 0.9 37.9 7 5 0.68 52.41 6 5 0.4 64.39
Shelf life 0.005 20 8 2.88 28.41 14 9 3.09 33.11 11 9 2.28 39.82 10 9 1.73 44.53
τ =4 0.01 20 7 2.94 27.21 14 8 3.08 31.05 11 8 1.85 36.8 10 8 1.53 40.89
0.02 19 6 2.95 25.89 15 7 3.15 29.14 12 7 2.29 33.66 11 7 1.87 37.06
0.05 19 4 3 24.05 16 5 3.02 26.01 13 5 2.1 30.29 11 6 4 32.35
0.1 18 2 3.02 22.33 16 3 2.92 23.68 13 4 3.13 26.05 12 4 2.37 27.73
Ordering cost K = 100
Shelf life 0.005 16 5 1 64.09 14 8 0.95 86.93 9 8 0.41 156.2 8 7 0.26 228.94
τ =2 0.01 15 2 1 62.56 12 8 1 81.72 8 7 0.34 139.6 8 7 0.34 195.33
0.02 14 0 1 61.11 11 7 0.96 76.83 8 7 0.46 121.4 8 7 0.46 163.9
0.05 13 4 1.05 58.67 11 5 1 69.12 9 6 0.95 99.79 7 6 0.47 124.09
0.1 12 2 1.11 55.53 10 3 0.98 63.78 8 5 1.03 84.32 7 5 0.68 100.35
Shelf life 0.005 21 8 3 42.27 19 8 2.73 49.5 12 9 3.01 62.13 11 9 2.28 69.55
τ =4 0.01 23 6 2.97 40.93 19 7 2.78 47.13 13 8 3.05 57.64 11 8 1.85 64.25
0.02 22 5 3 39.5 19 6 2.95 44.25 13 7 3.05 53.44 12 7 2.29 58.58
0.05 21 2 2.99 37.52 19 4 3 40.94 15 5 2.73 47.46 14 5 2.4 52.48
0.1 19 0 3 35.3 18 2 3.02 37.77 14 4 3.97 42.83 13 4 3.13 45.37
Demand rate (λ) = five units per unit time, lead time (L) = one unit of time.
(1) With an increase in the ordering cost (K), the ordering policy readjusts its variables Q, r, and t
in such a manner that the overall frequency of ordering decreases. This is effectively achieved
by placing larger orders, lowering the stock-level threshold (r) and increasing the age threshold
(t).

C 2015 The Authors.
Table 3
Sensitivity results for (Q, r, t) policy with respect to lead time (L), wastage cost (p), and fill rate (FR) requirement (α)
p=1 p = 10 p = 50 p = 100
α Q* r* T* TC* Q* r* t* TC* Q* r* t* TC* Q* r* t* TC*
Lead time 0.005 14 4 1.5 37.46 11 5 1.49 51.7 6 5 0.66 86.82 6 5 0.66 119.56
L = 0.5 0.01 12 4 1.5 36.56 11 4 1.38 49.65 6 5 1.01 74.85 6 5 1.01 98.33
0.02 12 3 1.5 35.35 9 4 1.51 45.48 7 4 1.07 67.89 6 4 0.82 87.33
0.05 12 0 1.51 33.62 10 2 1.46 40.82 7 3 1.27 55.96 6 3 0.93 69.26
0.1 11 0 1.58 31.63 9 1 1.46 37.06 7 2 1.4 47.8 6 2 1.02 57.24
Lead time 0.005 14 8 0.95 38.82 11 9 0.8 58.47 8 7 0.27 116.30 8 7 0.27 184.11
L=1 0.01 14 7 1 37.18 11 8 0.84 53.80 8 7 0.34 101.6 8 7 0.36 150.04
0.02 13 6 1 35.69 11 7 0.96 48.67 8 7 0.46 85.45 7 6 0.25 124.73
0.05 12 3 1 33.52 9 6 0.95 42.74 7 6 0.47 64.78 7 6 0.47 86.97
0.1 11 2 1.05 31.48 9 4 0.9 37.9 7 5 0.68 52.41 6 5 0.4 64.39
Lead time 0.005 15 12 0.5 39.24 12 8 0.16 62.31 11 7 0.06 145.3 11 7 0.06 248.9
L = 1.5 0.01 15 8 0.5 37.72 11 10 0.14 56.9 10 8 0.03 120.5 10 8 0.03 199.66
0.02 14 2 0.5 36.24 10 7 0.11 51.78 10 7 0.11 104.2 10 7 0.11 169.62
0.05 12 7 0.5 33.63 10 9 0.38 43.93 9 8 0.13 76.87 9 8 0.13 116.75
0.1 11 5 0.54 31.46 10 7 0.51 38.1 8 7 0.14 57.19 8 7 0.14 78.78
Demand rate (λ) = five units per unit time, shelf life (τ ) = two units of time.
(2) The increase in the cost of wastage (p) has the completely reverse effect of increasing the ordering
cost (K). In order to save on the cost of wastage, smaller orders are placed (by lowering Q) more
frequently by increasing the stock-level threshold (r) and decreasing the age threshold (t).
(3) As the fill rate (FR) criteria become more stringent—that is, the permissible fraction of unmet
demand (α) decreases—the three variables Q, r, and t are adjusted in such a manner that the
ordering quantity as well as the order frequency increases so as to reduce the stockouts.
(4) For an item with longer shelf life (τ ), it is optimal to order larger quantities as compared to
those with shorter shelf lives.
(5) In order to counter longer lead times (L), the system adjusts its ordering policy parameters so
as to ensure frequent ordering with larger order quantities.
4.3. Comparison with other policies
The optimal cost and policy parameters for the six policies for various combinations of shelf life
(τ ), fill rate (FR) constraint (α), and cost of wastage (p) are shown in Table 4. We make the following
observations based on the Table 4:
(1) As expected, the (s, S, T) policy manages to outperform the classical order-up-to-level (R, T)
policy on almost all the occasions. This can be attributed to the fact that the (s, S, T) policy is a
generalized version of the (R, T) policy. The percentage improvement was observed to be usually
higher when the life of the item was higher and the fill rate (FR) criterion was less stringent.
(2) The comparison of modified EWA policy with the OIR policy provides some interesting insights.
For the items with shorter shelf life, the modified EWA policy usually performs better, while

C 2015 The Authors.

Table 4
1576
Comparison of (Q, r, t) policy with other policies
Percentage
difference
of (Q, r, t)
with the
(R,T) policy (s, S, T) policy Mod. EWA policy OIR policy Classical (Q, r) policy (Q, r, t) policy next best
C 2015 The Authors.

α R* T* TC* S* s* T* TC* R* T* TC* R* T* δ* TC* Q* r* TC* Q* r* t* TC* policy
p=1 τ =2 0.005 24 1.58 46.06 24 17 1.58 46.06 20 1.91 39.80 18 1.98 0.1 42.23 No feasible solution 14 8 0.95 38.82 2.52
0.01 23 1.63 43.87 23 18 1.63 43.87 19 1.91 38.28 16 1.98 0.1 39.23 No feasible solution 14 7 1 37.18 2.96
0.02 21 1.63 42.07 21 16 1.63 42.07 18 1.91 36.82 14 1.92 0.2 37.51 10 9 42.2 13 6 1 35.69 3.16
0.05 19 1.68 39.26 18 13 1.63 38.88 17 1.98 33.99 12 1.92 0.2 34.61 10 8 38.91 12 3 1 33.52 1.40
0.1 17 1.76 36.23 20 16 1.86 36.07 15 1.98 31.99 11 1.98 0.1 32.18 11 7 34.16 11 2 1.05 31.48 1.62
τ =4 0.005 29 2.87 33.34 26 13 1.01 32.33 22 1.79 40.72 25 3.69 0.1 32.77 14 10 31.81 20 8 2.88 28.41 11.97
0.01 27 2.85 31.96 27 14 1.22 30.99 22 2.17 34.73 23 3.62 0.1 31.01 15 9 29.76 20 7 2.94 27.21 9.37
0.02 29 3.23 30.29 23 11 1.09 29.13 22 2.34 32.70 22 3.66 0.1 29.02 15 8 28.36 19 6 2.95 25.89 9.54
0.05 27 3.46 27.24 24 10 1.22 26.13 22 2.94 27.71 22 3.91 0.1 25.85 16 6 25.26 19 4 3 24.05 5.03
0.1 23 3.47 24.50 20 7 1.06 23.51 21 3.42 23.95 19 3.85 0.1 22.99 16 4 22.76 18 2 3.02 22.33 1.93
p = 10 τ =2 0.005 23 1.52 70.43 23 17 1.52 70.43 18 1.24 63.25 19 1.08 1 70.54 No feasible solution 11 9 0.8 58.47 8.18
0.01 21 1.52 63.23 21 16 1.52 63.23 18 1.63 58.46 19 1.41 0.1 62.99 No feasible solution 11 8 0.84 53.80 8.65
0.02 19 1.52 56.44 19 14 1.52 56.44 17 1.63 53.33 18 1.44 0.1 57.34 10 9 55.98 11 7 0.96 48.67 9.57

0.05 17 1.6 48.37 17 13 1.60 48.37 15 1.65 45.38 12 1.92 0.2 46.65 8 7 46.76 9 6 0.95 42.74 6.19
0.1 14 1.53 43.26 14 11 1.53 43.01 14 1.81 39.39 10 1.86 0.1 39.31 9 6 40.83 9 4 0.9 37.90 3.73
τ =4 0.005 24 2.07 40.60 24 13 1.01 36.30 22 1.79 43.05 24 2.17 0.6 39.50 14 10 35.33 14 9 3.09 33.11 6.70
0.01 25 2.56 37.33 23 12 1.01 33.97 22 2.17 36.80 22 2.17 0.4 37.38 14 9 33.01 14 8 3.08 31.05 6.31
0.02 24 2.63 34.51 23 11 1.09 31.47 22 2.34 34.73 22 2.37 0.2 34.46 15 8 30.93 15 7 3.15 29.14 6.14
0.05 22 2.81 30.15 22 9 1.05 28.20 21 2.73 29.98 17 3.24 0.1 30.51 15 6 27.11 16 5 3.02 26.01 4.23
0.1 20 3.02 26.41 19 7 1.01 24.64 21 3.39 25.96 16 3.34 0.1 25.75 15 4 23.9 16 3 2.92 23.68 0.93
p = 50 τ =2 0.005 18 1.02 123.13 18 16 1.02 122.98 17 1.08 118.54 19 1.08 1 130.34 No feasible solution 8 7 0.27 116.30 1.93
0.02 16 1.08 94.91 16 14 1.08 94.76 15 1.08 89.81 16 1.08 1 94.47 10 9 117.25 8 7 0.46 85.45 5.10
0.05 14 1.1 75.24 14 11 1.08 74.26 14 1.22 70.49 14 1.09 0.9 75.26 8 7 73.19 7 6 0.47 64.78 8.81
0.1 12 1.13 59.99 12 11 1.13 59.99 13 1.57 58.49 13 1.43 0.1 59.03 7 6 58.28 7 5 0.68 52.41 11.20
τ =4 0.005 22 1.77 51.60 20 14 1.06 46.32 21 1.63 50.91 21 1.63 0.1 50.93 11 10 43.75 11 9 2.28 39.82 9.87
0.01 21 1.84 45.85 21 13 1.02 42.74 22 2.16 45.64 21 1.84 0.8 45.85 10 9 39.4 11 8 1.85 36.80 7.07
0.02 21 2.17 41.27 19 12 1.06 38.64 20 1.99 40.82 20 1.93 0.8 41.32 11 8 36.1 12 7 2.29 33.66 7.25
0.05 19 2.19 35.56 19 10 1.08 32.26 19 2.22 34.69 18 2.16 0.1 34.63 12 6 30.46 13 5 2.1 30.29 0.56
0.1 18 2.6 29.67 18 8 1.11 27.45 18 2.6 29.56 17 2.41 0.3 29.67 14 4 26.53 13 4 3.13 26.05 1.84
p = 100 τ =2 0.005 18 1.02 188.33 18 16 1.02 188.17 17 1.08 181.89 19 1.08 1 205.09 No feasible solution 8 7 0.27 184.11 −1.20
0.02 16 1.08 136.31 16 14 1.08 136.16 15 1.08 126.26 16 1.08 1 135.42 10 9 193.84 7 6 0.25 124.73 1.23
0.05 14 1.1 99.39 14 11 1.08 98.21 13 1.06 89.04 14 1.08 1 98.61 8 7 106.23 7 6 0.47 86.97 2.38
0.1 12 1.13 71.29 12 11 1.13 71.29 12 1.13 72.22 12 1.13 0.9 71.49 7 6 76.09 6 5 0.4 64.39 10.72
τ =4 0.005 20 1.43 57.79 20 14 1.06 51.87 19 1.27 58.00 20 1.43 0.6 57.79 11 10 52.96 10 9 1.73 44.53 16.49
0.01 19 1.43 52.49 19 13 1.06 46.88 19 1.48 50.62 19 1.48 0.3 51.37 10 9 43.92 10 8 1.53 40.90 7.38
0.02 19 1.77 45.65 19 12 1.02 41.87 18 1.57 45.77 18 1.62 0.1 44.24 10 8 39.38 11 7 1.87 37.07 6.23
0.05 17 1.84 37.37 18 10 1.08 35.08 17 1.84 37.40 17 1.84 0.8 37.37 11 6 32.36 11 6 4 32.36 0.00
0.1 17 2.31 31.74 17 8 1.13 29.39 16 2.17 31.57 16 2.18 0.2 31.21 11 5 29.51 12 4 2.37 27.74 5.96

Demand rate (λ) = five units per unit time, ordering cost (K) = 50/order, lead time (L) = one unit of time. Avg. Diff (%) = 5.38%, Max Diff (%) = 16.49%. The
values highlighted in light grey and dark grey represent the best and the second best total cost values, respectively.
for the longer shelf-life items, it is the reverse. This can be attributed to the fact that in case of
items with shorter shelf lives, the size of order inflation is higher under the OIR policy (inflation
is equal to the old stock) as compared to the modified EWA policy (inflation is equal to the
expected outdating), thus resulting in more wastage and hence increased costs under the OIR
policy. For the items with longer shelf lives, since the expected outdating (as well as the actual
outdating) in a given cycle is low, the order inflation is generally lower under modified EWA
policy. OIR policy benefits in this case due to larger ordering sizes and less frequent ordering
thus reducing its ordering costs. (s, S, T) policy was found to be generally performing better
than the OIR policy.
(3) For longer shelf-life products, the classical continuous review policy (Q, r) generally performs
better than all the four periodic review policies. The higher the fill rate (FR) requirement, the
better is the relative performance. For shorter shelf-life products, since both Q and r are bound
to be integers, some periodic review policies give lower costs than the (Q, r) policy. In some
instances where the fill rate (FR) criteria are very stringent, (Q, r) policy even fails to give a
feasible solution.
(4) Except for one instance, the suggested (Q, r, t) policy performs better than all the other policies.
The improvements are much higher when the fill rate (FR) constraint is stringent (low α).8
This means that the policy gives a much better performance when the permissible fraction of
unmet demand is low. In case of the tight fill rate (FR) constraint, the (Q, r, t) policy orders
in appropriate quantities (depending upon the ordering and perishing costs) and controls the
ordering decisions based on the stock level or age threshold, whichever is dominant in the given
cycle. Similarly, the (Q, r, t) policy gives lower costs when the cost of perishing is very high. By a
simultaneous adjustment of its reordering parameters, the (Q, r, t) policy achieves a lower cost
while fulfilling the fill rate (FR) constraint.
4.4. Application in a real-life setting
We chose an HBB operating in the southern part of India for the purpose of this study. The blood
bank issues WB, RBCs, platelets, plasma, and cryoprecipitate to its patients. WB and RBCs are
stored (and managed) separately at the blood bank based on their blood group type (eight types).
WB and RBCs of the same blood group are substitutable for all practical purposes; in the absence
of one of them, the other component of the same blood group can be safely given to the patient after
appropriate testing (WHO, 2002a, 2002b, 2005). Platelets do not have a blood group and platelets
of one group can be given to a patient of another blood group (WHO, 2002a, 2002b, 2005). Platelets
obtained from the fractionation of blood are too little in quantity and hence it is a common practice
to pool platelets from multiple donors whenever a need arises (WHO, 2002a, 2002b, 2005). They
are stored at room temperature in a constant stirring condition (Seeber and Shander, 2007). We
focused only on the problem of ordering WB, RBCs, and platelets. Plasma and cryoprecipitate were
ignored in this research since they have very long shelf lives (1 year) making them practically
nonperishable.
8
Modified lot-size reordering policy by Tekin et al. (2001) was also shown to perform increasingly better than (Q, r)
policy at more stringent fill rate requirements.

C 2015 The Authors.
Table 5
Summary statistics: size of request and interarrival times of blood products
Interarrival time (days) Size of the request (units)

Blood product Average SD Average SD
O+ 0.12 0.19 1.43 0.74
B+ 0.14 0.20 1.40 0.88
A+ 0.23 0.30 1.56 1.02
AB+ 0.53 0.63 1.40 0.60
O– 1.59 1.63 1.45 0.64
B– 1.83 1.89 1.21 0.41
A– 2.54 2.88 1.28 0.51
AB– 9.37 8.25 1.33 0.71
Platelets 0.33 0.70 2.92 1.59
We analyzed the demand data for the three products collected over six months at the given blood
bank. The demand data for WB and RBCs of the same group types were aggregated. Similarly,
the demand for platelets from all groups was aggregated. The data regarding the interarrival times
and size of units requested by the patients are summarized in Table 5. The interarrival times specify
how frequently the blood items are demanded at the blood bank; the lower the interarrival time, the
higher is the frequency with which units are demanded.
The positive blood groups typically constitute 95% of the total blood demand (and supply). The
most required blood is O+ , while the least demanded blood is AB− . Negative blood groups are quite
rare, and their demand is both sluggish (high average of interarrival times) and erratic (high SD of
interarrival times). In case of an emergency, the supply of negative blood groups can pose serious
problems. Wastage of such blood groups, therefore, is an even bigger concern for the manager of a
blood bank. Wasting one unit of blood, especially of the rare type, can create a situation of potential
shortage in the near future. Even though platelets were usually demanded in larger quantities, their
demand was also found to be quite erratic.
The demand for blood products is rarely in single units (bags). The number of units transfused to
a patient depended on the type of surgery or ailment. In case of a serious accident where a patient
could lose substantial amount of blood, even 15–20 units of transfusion might be required. Figure 3
shows the distribution of the size of request of the eight blood groups and platelets. It can be seen
from the figure that the number of units of blood required by the patient was as high as 16 units in
some cases.
The lead time (L) of delivery from an RBB to HBB was assumed to be one day. The fixed cost
of ordering (K) was assumed to be ₹300 per order, independent of the order quantity. Once they
have been received at the blood bank, both WB and RBCs lasted for approximately 30 days while
platelets lasted for about five days. The holding cost of all the blood products was assumed to be ₹1
per unit per day. Two levels (low = ₹100 per unit and high = ₹1000 per unit) were assumed for the
cost of wastage (p) for all the nine items. This cost can be estimated as the sum of the purchasing
cost and disposal cost of blood bag along with the cost of a potential shortage in future due to
wastage of the component (relevant for rare blood groups). We also considered five scenarios of
minimum fill rate (FR) criteria (α = 0.005, 0.01, 0.02, 0.05, and 0.1) while computing the optimal
policy parameters. Due to the operational constraints at the blood bank, it was not possible to track

C 2015 The Authors.
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C 2015 The Authors.

Fig. 3. Distribution of size of request for blood and platelets.


the age of units on an hourly basis. Therefore, we assumed the age threshold (t) to be an integer
variable (in days) even though it is a continuous variable.
The data regarding the probability distributions of demand (request size and interarrival times)
along with various HBB parameters (various costs, lead time, shelf lives) were given as an input to
the simulation model. Based on the results in the previous section, we considered only the following
two policies for the given blood bank: (Q, r) and (Q, r, t). The optimum ordering policy parameters
obtained from the model for the two policies are shown in Table 6 (positive blood groups), Table 7
(negative blood groups), and Table 8 (platelets), respectively. It can be seen from the three tables that
the (Q, r, t) policy would generally9 result in a superior performance over the classical (Q, r) policy
for the nine products as compared to the classical continuous review policy. The improvements are
generally higher when the product has shorter life span (like platelets) or has a sluggish and/or
erratic demand (like negative blood groups, which have very high average and SD of interarrival
time of the demand). The improvement is generally higher when the fill rate (FR) criteria (α) are
more stringent or when the cost of wastage is higher.
For frequently demanded positive blood groups, the improvements probably do not justify the
implementation of the (Q, r, t) policy. For negative groups and platelets, however, the (Q, r, t) policy
can lead to a significant reduction in the wastage of blood products (along with the reduction in the
total costs) while still maintaining the minimum desirable fill rate (FR) levels. Depending upon the
fill rate (FR) requirement for various products, the manager of a blood bank can decide the optimal
policy and its parameters using the simulation model.
5. Discussion and conclusion
The results in the previous two sections indicate that the combined age-and-stock-based policy can
be extremely effective in managing the inventory of the following10 :
r critical products that have a very high fill rate (FR) requirement,
r products with very high cost of wastage,
r products with short shelf lives,
r products that require long lead times to procure, and
r products with sluggish and/or erratic demand.
Apart from platelets, which have short shelf lives and are extremely critical for blood bank
operations (low α), the suggested policy should also be useful for managing the inventory of
negative blood groups. These blood groups are extremely rare in nature (<6%), both in terms of
supply and demand. Moreover, they require long lead times for procurement and their wastage can
be very costly (in nonmonetary terms). For products with relatively longer shelf lives and stable
demand (such as positive blood groups), the incremental benefit of keeping track of the life along
with the stock levels may not be significant. Hence, such products can be managed according to a
9
Due to the restriction of the age threshold being an integer variable, in some cases, the optimal cost from both policies
was found to be the same.
10
Tekin et al. (2001) mention similar application of their policy for certain slow-moving composite materials with short
shelf-lives and tight service-level requirements.

C 2015 The Authors.
Table 6
Optimal policy parameters for ordering blood at the blood bank (positive groups)
(Q, r, t) policy Classical (Q, r) policy Percentage

α Q* r* t* TC* Q* r* TC* improvement
O+
p = 100 0.005 87 20 11 93.67 87 20 93.68 0.01
0.01 87 12 7 91.05 85 17 91.43 0.42
0.02 86 15 13 87.10 86 15 87.11 0.01
0.05 83 9 13 82.05 83 9 82.06 0.02
0.1 85 2 10 77.39 79 4 77.91 0.67
p = 1000 0.005 87 20 11 93.67 87 20 93.68 0.01
0.01 87 12 7 91.05 85 17 91.43 0.42
0.02 86 15 13 87.10 86 15 87.11 0.01
0.05 83 9 13 82.05 83 9 82.06 0.02
0.1 85 2 10 77.39 79 4 77.91 0.67
B+
p = 100 0.005 85 17 12 85.92 83 16 86.10 0.21
0.01 85 16 12 83.40 85 16 83.58 0.21
0.02 83 12 12 81.03 83 12 81.03 0.00
0.05 81 6 12 75.88 81 8 76.83 1.24
0.1 79 3 12 71.42 77 2 71.64 0.30
p = 1000 0.005 85 17 12 85.92 83 16 86.10 0.21
0.01 85 16 12 83.40 85 16 83.58 0.21
0.02 83 12 12 81.03 83 12 81.03 0.00
0.05 81 6 12 75.88 81 8 76.83 1.24
0.1 79 3 12 71.42 77 2 71.64 0.30
A+
p = 100 0.005 63 14 16 71.63 63 14 71.63 0.00
0.01 66 10 11 67.69 60 12 70.17 3.54
0.02 69 9 15 67.21 69 9 67.21 0.00
0.05 67 5 13 63.42 65 6 63.51 0.13
0.1 62 1 15 59.16 62 1 59.16 0.00
p = 1000 0.005 63 14 16 71.63 63 14 71.63 0.00
0.01 66 10 11 67.69 60 12 70.17 3.54
0.02 69 9 15 67.21 69 9 67.21 0.00
0.05 67 5 13 63.42 65 6 63.51 0.13
0.1 62 1 15 59.16 62 1 59.16 0.00
AB+
p = 100 0.005 43 5 19 44.05 45 6 44.33 0.62
0.01 43 4 20 42.52 39 5 42.99 1.08
0.02 40 3 19 41.19 46 3 41.32 0.30
0.05 46 1 27 39.23 46 1 39.23 0.00
0.1 41 0 28 37.57 38 0 37.75 0.47
p = 1000 0.005 43 5 19 44.05 41 7 44.48 0.96
0.01 43 4 20 42.52 39 5 42.99 1.08
0.02 40 3 19 41.19 41 4 41.85 1.57
0.05 46 1 27 39.23 46 1 39.23 0.00
0.1 41 0 28 37.57 38 0 37.75 0.47
Avg. diff. = 0.5%, max diff. = 3.54%.

C 2015 The Authors.
Table 7
Optimal policy parameters for ordering blood at the blood bank (negative groups)
(Q, r, t) policy Classical (Q, r) policy Percentage

α Q* r* t* TC* Q* r* TC* improvement
O−
p = 100 0.005 18 4 25 30.96 17 5 31.68 2.26
0.01 18 3 29 28.88 17 4 29.93 3.50
0.02 20 2 29 28.02 17 3 28.62 2.11
0.05 18 1 29 25.71 18 1 25.73 0.10
0.1 17 0 30 24.36 17 0 24.36 0.00
p = 1000 0.005 13 5 29 37.21 13 5 37.21 0.00
0.01 12 4 30 34.95 12 4 34.95 0.00
0.02 14 3 28 31.96 14 3 32.07 0.34
0.05 16 1 30 28.52 16 1 28.52 0.00
0.1 15 0 29 26.29 15 0 26.29 0.01
B–
p = 100 0.005 14 2 29 25.80 13 3 27.21 5.17
0.01 14 2 30 25.58 14 2 25.58 0.00
0.02 14 1 29 23.90 14 2 25.58 6.56
0.05 14 0 29 22.63 16 0 23.23 2.60
0.1 14 0 30 22.35 14 0 22.35 0.00
p = 1000 0.005 9 3 23 33.64 9 3 34.27 1.84
0.01 10 2 29 30.41 10 2 30.66 0.84
0.02 10 2 29 30.41 10 2 30.66 0.84
0.05 10 1 30 27.46 10 1 27.46 0.00
0.1 11 0 29 24.91 10 0 25.17 1.01
A–
p = 100 0.005 10 3 23 29.00 8 4 31.03 6.56
0.01 9 3 29 27.73 9 3 27.74 0.06
0.02 10 2 29 25.52 10 3 27.66 7.76
0.05 10 1 30 23.45 10 1 23.45 0.00
0.1 10 0 30 21.60 10 0 21.60 0.00
p = 1000 0.005 5 4 19 48.78 6 4 49.54 1.55
0.01 7 3 29 43.63 5 4 48.56 10.14
0.02 7 2 23 36.78 6 3 41.66 11.72
0.05 8 1 30 31.97 8 1 31.97 0.00
0.1 8 0 27 28.26 7 1 30.30 6.72
AB–
p = 100 0.005 7 2 29 28.78 No feasible solution —
0.01 5 2 29 26.04 6 5 41.93 37.89
0.02 6 1 29 24.34 4 3 31.31 22.27
0.05 5 0 27 21.49 5 1 22.15 2.95
0.1 4 0 29 18.82 5 0 19.86 5.24
p = 1000 0.005 4 3 22 113.89 No feasible solution —
0.01 4 2 22 91.35 6 5 202.09 54.80
0.02 3 2 25 73.54 4 3 110.78 33.62
0.05 3 1 23 53.21 3 2 72.30 26.39
0.1 3 0 24 40.75 3 1 49.14 17.07
Avg. diff. = 7.155%, max. diff. = 54.8%.

C 2015 The Authors.
Table 8
Optimal policy parameters for ordering platelets at the blood bank
Percentage
(Q, r, t) policy Classical (Q, r) policy
improve-
α Q* r* t* TC* Q* r* TC* ment
Platelets (all groups)
p = 100 0.005 28 24 1 707.58 No feasible solution –
0.01 34 30 2 514.20 No feasible solution –
0.05 28 24 4 323.01 32 29 386.89 16.51
0.1 28 17 4 254.82 26 21 275.67 7.56
p = 1000 0.005 28 24 1 5210.35 No feasible solution –
0.05 26 24 3 1920.01 32 29 2627.17 26.92
0.1 23 19 4 1293.80 24 22 1536.94 15.82
Avg. diff. = 16.70%, max. diff. = 26.92%.
classical continuous review policy. Products such as plasma and cryoprecipitate, which last for more
than a year and are relatively less popular for transfusion, can be managed according to one of the
periodic review policies such as an (R, T) policy.
It may be noted that since the analysis was performed for a generic perishable product in this
paper, the insights are valid for different blood products. The actual optimum levels of ordering
quantities, stock levels, and age thresholds are functions of various HBB parameters such as the
type of blood product; demand profile for the product; costs of ordering, holding, and wastage;
distribution of lead time; and permissible fill rate (FR) criteria specified by the manager of a blood
bank for the given product. Once these parameters are specified by the manager of an HBB, the
simulation model can suggest the optimum levels of Q, r, and t for the blood product. The model
logic used in the paper can, in fact, be an integral part of the Decision Support System (DSS) that
is used by HBBs to place orders for various blood products.
The inherent limitation of this study is that simulation-based results cannot be readily generalized
for other systems. It would be interesting to develop analytical models that study the actual aging
behavior of perishable products. The other limitation of this study is that it implicitly assumes that
HBBs do not perform their own collection but instead order blood from an RBB. In reality, HBBs
do collect their own blood through outdoor camps as well as blood bank donations. Some blood
banks may also have a restriction of the minimum number of units to be received from prescheduled
deliveries. In order to meaningfully implement the suggested policy in such cases, the simulation
model must incorporate all the flows in to and out of the system.
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C 2015 The Authors.
Appendix: Modified exhaustive search heuristic
It can be seen that both total cost (TC) rate and the fraction of lost sales (α) are functions of
three variables Q, r, and t. The total cost rate is nothing but the sum cost of ordering, wastage, and
holding. All the three cost components decrease while the fraction of lost sales (α) increases with
an increase in the age threshold (t) for a given set of values of Q and r due to less frequent ordering.
Without the loss of generality, one can write the following two properties for the (Q, r, t) policy:
Property 1. α(Q, r, t) ≤ α(Q, r, t + t) and TC(Q, r, t) ≥ TC(Q, r, t + t) ∀ t ≥ 0
Property 2. α(Q, r, t) ≥ α(Q, r + r, t) and TC(Q, r, t) ≤ TC(Q, r + r, t) ∀ r ≥ 0
Using the two properties mentioned above, one can say that for a given set of values of Q and r, if
one increases the age threshold (t) the minimum cost will occur at the point that gives the maximum
fraction of lost sales (α). Since there is a permissible limit of fraction of lost sales (α max ), the age
threshold should be increased only till the point where the actual fraction of lost sales (α) does
not exceed this permissible limit. If the optimum age-threshold value corresponding to Q and r is
denoted by ts , then one can safely say that the optimum age-threshold value corresponding to Q
and r +r will be at least equal to ts . This becomes the central logic for the modified exhaustive
search heuristic described below.
The user specifies the minimum and maximum permissible values of the order quantity (Q1
and Q2 , respectively), stock-level threshold (r1 and r2 , respectively), age-level threshold (t1 and
t2 , respectively), and the maximum permissible fraction of unmet demand (α max ) along with the
hospital blood bank parameters. The step sizes for an increment in the three decision variables—
namely, q, r, and t—are also specified at the start. The following heuristic then searches for
the optimal values of order quantity (Q*), stock-level threshold (r*), and age-level threshold (t*),
which minimizes the total cost (TC*) subject to the condition of maximum permissible fraction of
unmet demand (α max ).
START
INPUT Q1 , Q2 , r1 , r2 , t1 , t2 , q, r, t, α max
Require: Q2 Q1 , r2 r1 , t2 t1 , q 0, r 0, t 0
TC*←
FOR Q = Q1 TO Q = Q2 STEP q
t s ← t1
FOR r = r1 TO r = r2 STEP r
FOR t = ts TO t = t2 STEP t
IF α(Q,r,t) α max THEN
IF TC(Q,r,t) TC* THEN
TC*← TC(Q,r,t), Q*← Q, r*←r, t*←t
ENDIF
ELSE
ts ←t – t
BREAK
ENDIF
NEXT t
NEXT r
NEXT Q
END

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INTERNATIONAL

A combined age-and-stock-based policy for ordering blood

Keywords: blood inventory; ordering policy; hospital blood banks

The major findings of our research are summarized below:

3. Model description and assumptions

3.2. Model description

3.3. Model assumptions

For the purpose of this research, we make the following assumptions3 :

Policy 1: classical order-up-to-level policy ([R, T] policy)

Policy 2: (s, S, T) policy

Policy 4: OIR policy

Policy 5: classical continuous review (Q, r) policy

Policy 6: combined age-and-stock-based ordering policy

Fig. 1. Inventory behavior for (Q, r, t) policy.

4.1. Test parameters

4.2. Sensitivity of policy variables

C 2015 The Authors.

International Transactions in Operational Research

Parameter Symbol Values tested

4.3. Comparison with other policies

C 2015 The Authors.

International Transactions in Operational Research

C 2015 International Federation of Operational Research Societies

4.4. Application in a real-life setting

Interarrival time (days) Size of the request (units)

C 2015 The Authors.

International Transactions in Operational Research

5. Discussion and conclusion

(Q, r, t) policy Classical (Q, r) policy Percentage

(Q, r, t) policy Classical (Q, r) policy Percentage

Avg. diff. = 16.70%, max. diff. = 26.92%.

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