Allocating Cost of Service to Customers in Inventory Routing

Authors:
Okan Örsan Özener;Özlem Ergun;Martin Savelsbergh
Affiliations:
Department of Industrial Engineering, Ozyegin University, Istanbul 34794, Turkey;H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332;School of Mathematical and Physical Sciences, University of Newcastle, Callaghan NSW 2308, Australia
Venue:
Operations Research
Year:
2013

Citing 6
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Abstract

Vendor-managed inventory VMI replenishment is a collaboration between a supplier and its customers, where the supplier is responsible for managing the customers' inventory levels. In the VMI setting we consider, the supplier exploits synergies between customers, e.g., their locations, usage rates, and storage capacities, to reduce distribution costs. Due to the intricate interactions between customers, calculating a fair cost-to-serve for each customer is a daunting task. However, cost-to-serve information is useful when marketing to new customers or when revisiting routing and delivery quantity decisions. We design mechanisms for this cost allocation problem and determine their characteristics both analytically and computationally.