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.