Optimal transportation policies for production/inventory systems with an unreliable and a reliable carrier

Authors:
Sean X. Zhou;Xiuli Chao;Chung-Yee Lee
Affiliations:
Department of Systems Engineering and Engineering Management, Chinese University of Hong Kong, Shatin, Hong Kong;Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, USA 48109-2117;Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Venue:
Journal of Global Optimization
Year:
2009

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Abstract

In this paper, we consider a periodic-review make-to-order production/inventory system with two outbound transportation carriers: One carrier is reliable, the other carrier is less reliable but more economical. The objective is to find the optimal shipping policy that minimizes the total discounted transportation, inventory, and customer waiting costs. Under several scenarios, we characterize the optimal policy and present the structural properties for the optimal control parameters and the key performance measures. Our results provide managerial insights on how a manufacturer can effectively manage its transportation carriers and product shipment. We also discuss several possible extensions of the model.