Economic and Risk Implications in the Distribution of Petrol Products to Service Stations under Retailer Managed and Vendor Managed Inventories

Abstract

ABSTRACT Retailer inventory management is the common approach that is used by oil companies in the distribution of petrol products to service stations. Service station retailers send orders to the oil company vendor according to their own perception of inventory and of the future demand. The oil vendor consequently optimizes the deliveries by solving a related capacitated-vehicle routing problem. Nowadays, the technological possibility to monitor remotely the level of the underground storage tanks in the service stations allows a new formulation of the problem, planning deliveries based on the actual level of the inventory and on a prediction of future demand, that is, shifting also the inventory management on the vendor side. From a sustainable viewpoint, the centralization of the management of the retailer inventories has an economic impact, that in the case of petrol products is also related to risk impact, that has not yet been evaluated. Under this perspective, a comparison between the two approaches is described, where the vendor inventory management is proposed according to an original formulation of the problem integrating both the inventory and the routing costs in the objective function of the related mathematical programming formulation. This formulation has been implemented, tested and compared with respect to a simple simulated retailer inventory procedure in a series of random trials. In addition, the evaluation has been applied to an actual case study, related to the Nice (France) district, to evaluate the improvements of the performance of the distribution of petrol products by tank trucks when the central depot can receive the levels of the underground storage tanks in real-time. The results show that the proposed approach would have allowed a reduction in the number of deliveries and in the overall amount of kilometers necessary for the deliveries themselves, that is with a certain related economic impact. As a consequence, it is also shown that risk in the transportation of petrol products also decreases in the territory affected by this transportation, thus improving both the economic and the risk sustainability of this transport.