Abstract
This study considers a two-echelon system in which a vendor produces a product at a finite production rate and supplies it to several buyers facing independent normally-distributed demands. The product is delivered to the buyers using a set of different speed vehicles with identical capacity and different operating costs. The issues of lead time reduction and the service level constraint on the buyers have been incorporated in the model. A model is formulated to determine the optimal production–inventory policy, vehicle routes and vehicle type for each route by minimising the related production, inventory, lead time crashing and transportation costs of the system while satisfying the service level constraint on each buyer. A coordinated two-phase iterative approach is proposed to solve the model. Finally, a numerical example is included to describe the solution approach and illustrate the results.
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