Sustainable Inventory Management for Perishable Dairy Products: A Circular-Economy Approach Integrating Environmental Costs

The transition toward sustainable food systems requires innovative approaches to managing perishable products, where inefficient inventory practices contribute significantly to global food loss and environmental degradation. This study develops a circular-economy-oriented inventory optimisation framework for dairy supply chains that integrates environmental externalities and waste valorisation pathways into operational decision-making. Departing from traditional linear “produce–consume–dispose” models, this study embeds three core sustainability mechanisms into a stochastic dynamic-programming framework: (1) progressive environmental cost internalisation aligned with EU Emissions-Trading System carbon pricing, capturing both waste-related emissions and cold-chain energy footprints; (2) circular-economy value-recovery channels that redirect near-expiry products to secondary applications (animal feed, biogas production, industrial processing) rather than disposal; and (3) deterioration-aware demand management that minimises resource throughput while maintaining service levels. Empirical calibration using Ukrainian dairy industry data demonstrates that sustainability-integrated inventory policies reduce waste generation by 4.8–10% relative to conventional approaches, with high-deterioration products showing the greatest potential for improvement. The authors identify a critical threshold in the circular economy: when salvage recovery rates exceed 35%, waste becomes an economic and ecological asset, fundamentally altering the sustainability calculus of inventory decisions. Environmental costs account for 4.6% of total operating expenses at current carbon prices, a share projected to increase substantially as climate regulations tighten. The findings provide actionable guidance for dairy supply chain stakeholders pursuing the Sustainable Development Goals (SDGs 2, 12, 13): processors should establish circular-economy partnerships that achieve salvage rates above 35%, implement product-specific policies for high-deterioration items, and proactively integrate carbon pricing into inventory optimisation. The framework bridges sustainable operations theory and circular economy practice, offering a replicable model for transitioning perishable food supply chains toward closed-loop, low-waste configurations that simultaneously reduce environmental impact and enhance economic performance.