Coordinating Deliveries and Inventories for a Supply Chain under Vendor Managed Inventory System

Abstract

This paper deals with coordinating delivery schedules and inventory replenishments in a supply chain operated under Vendor Managed Inventory (VMI) system. We propose a new model of Vendor Managed Inventory Routing (VMIR) based on the existing Period Traveling Salesman Problem (PTSP) model. The proposed model will be referred to as the Integrated Inventory and Period Traveling Salesman Problem (IPTSP). In the IPTSP, the delivery frequency is treated as a decision variable instead of a given parameter. We formulate the problem and develop a heuristic approach to solve it. We put emphasis on the procedure for seeking the best delivery frequency for retailers called "delivery consolidation". Assuming that each retailer is initially visited every day during the m-day period, the procedure tries to consolidate the current deliveries in order to make a trade-off between traveling costs and inventory holding costs in order to minimize system-wide costs. The numerical experiment results show that by treating the delivery frequency as a decision variable some benefits can be produced.

Vendor-managed inventory: a review based on dimensions

“…Routing optimisation with VMI (VMIR) using different methods and replenishment policies was discussed by Kleywegt, Nori, and Savelsbergh (2002), Rusdiansyah and Tsao (2005), Archetti et al (2007), and Arora, Chan, and Tiwari (2010). Their common goal was to identify the most suitable routing under deterministic or stochastic situations.…”

“…By varying the number of customers, vehicles, and demand, the first policy proved to be the most efficient. Rusdiansyah and Tsao (2005), Archetti et al (2007) and Raa and Aghezzaf (2008) studied a deterministic demand problem, applied to two echelons. Archetti et al (2007) described a VMI routing with order-up (VMIR-OU).…”

“…By comparing the results, it can be seen that relaxing some constraints on order-up-to-level problems can result in lower inventory and transportation costs. Rusdiansyah and Tsao (2005) extended the Period Travel Salesman Problem (PTSP), and called it VMI routing (VMIR). Within this model, the delivery frequency is variable in order to identify the optimal delivery strategy called delivery consolidation.…”

A review of Vendor Managed Inventory (VMI): from concept to processes

“…The supplier increases the percentage of low-cost full truckload shipments and can opt for more efficient route planning with multi stops to replenish several customers' inventories (Waller et al 1999). The supplier gains more freedom, making decisions on quantity and timing of replenishment (Rusdiansyah and Tsao 2005). Some authors (Kauremaa et al 2007, Claassen et al 2008, Wong et al 2009) translate this new degree of freedom into a better flexibility.…”

Partial chain based GA for joint inventory and delivery scheduling with vehicle rent way

“…Rusdiansyah [6,7] consider the joint optimization of inventory replenishment strategy, shipping frequency, and vehicle routing in a vendor managed inventory (VMI) mode, an integrated inventory and Period-TSP model is developed. Gaur et al [8] consider a periodic IRP problem in a supermarket chain, which determines simultaneously how often (the times per week) each supermarket should be replenished by distribution centre and the vehicle routes so as to minimize the total costs.…”