An Efficient Heuristic Algorithm for a Two-Echelon Joint Inventory and Routing Problem

Authors:
Jaeheon Jung;Kamlesh Mathur
Affiliations:
Posco Research Institute, 137 Samseong-dong, Gangnam-gu, Seoul 135-878, South Korea;Department of Operations, Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106
Venue:
Transportation Science
Year:
2007

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Abstract

With an increasing emphasis on coordination in the supply chain, the inventory and distribution decisions, which in most part had been dealt with independently of each other, need to be considered jointly. This research considers a two-echelon distribution system consisting of one warehouse and N retailers that face external demand at a constant rate. Inventories are kept at retailers as well as at the warehouse. The products are delivered to the retailers by a fleet of vehicles with limited capacity. We develop an efficient heuristic procedure that finds a reorder interval for the warehouse, the replenishment quantities (and associated reorder interval) for each retailer, and the delivery routes so as to minimize the long-run average inventory and transportation costs.