Coordination of inventory and transportation managements in a two-level supply chain

In this study, we consider a two-level supply chain in which a supplier serves a group of retailers in a given geographic region and determines a replenishment plan for each retailer by using the information on demands of final customers and inventory levels of the retailers. Deliveries are carried out by homogeneous vehicles with a finite capacity, and each vehicle can visit multiple retailers in a single trip. The problem considered here is to determine the replenishment quantities and timing for the retailers as well as the amount of products delivered to the retailers by each vehicle for the objective of minimizing the sum of the fixed vehicle cost, retailer-dependent material handling cost, and inventory holding cost of the whole supply chain. We develop heuristic algorithms by simultaneously considering inventory and transportation decisions. A series of computational tests are performed for evaluation of the performance of the heuristic algorithms, and results show that the heuristic algorithms give good solutions in a reasonably short computation time.