An Integrated Outbound Logistics Model for Frito-Lay: Coordinating Aggregate-Level Production and Distribution Decisions

Abstract

In this paper, we describe research to improve Frito-Lay's outbound supply chain activities by simultaneously optimizing its inventory and transportation decisions. Motivated by Frito-Lay's practice, we first develop a mixed-integer programming formulation from which we develop a large-scale, integrated multiproduct inventory lot-sizing and vehicle-routing model with explicit (1) inventory holding costs, truck loading and dispatch costs, and mileage costs; (2) production, storage, and truck capacity limitations; and (3) direct (plant-to-store) and interplant (plant-to-plant) delivery considerations. Second, we present an iterative solution approach in which we decompose the problem into inventory and routing components. The results demonstrate the impact of direct deliveries on distribution costs and show that direct deliveries and efficient inventory and routing decisions can provide significant savings opportunities over two benchmark models, one of which represents the existing Frito-Lay system. We implemented our models using an application that allows strategy evaluation, analysis of output files, and technology transfer. This application was particularly useful in evaluating potential direct-delivery locations and inventory reductions throughout the supply chain.