An integrated approach for optimizing location-inventory and location-inventory-routing problem for perishable products

Abstract

The grocery market, especially the perishable product market is under amazing developments in China, accounting for half of overall food expenditure. However, the supply chain of perishable products has encountered serious problems, including significant freight losses, high inventory and transportation costs, etc. To solve these problems, the current paper proposes an integrated approach for simultaneously optimizing the decisions involved in the supply chain, typically including location, inventory, and routing strategy. A three-echelon supply chain including suppliers, DCs and retailers is structured in this paper, with the impacts of whether allowing direct shipment from supplier to retailer being considered. Two typical problems are investigated: location-inventory problem (LIP) and location-inventory-routing problem (LIRP). Mixed integer nonlinear programming model for LIP is proposed while Mixed integer linear programming models for LIRP is proposed, with the objective of minimizing the overall costs of supply chain, which are composed of infrastructure construction costs, transportation costs, inventory costs, and freight losses. CPLEX is used for LIP model solution and a two-stage heuristic algorithm based on Simulated Annealing is designed to solve the LIRP model. The proposed mathematical models and solution method are then applied to a real supply chain network for fresh milk. The optimized results suggest that considering the direct shipment from supplier to retailer is beneficial in terms of reducing the overall supply chain costs by 31%, with 43% reductions in transportation costs, 69.4% reductions in freight losses, 99.4% increases in inventory costs. With the developments of e-retailers for perishable products, allowing the direct shipment from supplier to retailer will bring more benefits in the future.