Incorporating lateral transfers of vehicles and inventory into an integrated replenishment and routing plan for a three-echelon supply chain

Abstract

This paper focuses on developing an integrated replenishment and routing plan that takes into account lateral transfers of both vehicles and inventory for a three-echelon supply chain system including a single plant, multiple distribution centers and multiple retailers. A mixed integer programming model to the overall system is formulated first, and then an optimization-based heuristic consisting of three major components is proposed. The purpose of the first component is to assign retailers to distribution centers, and determine routing schedules for each distribution center. And the remaining two components are corresponding to two smaller optimization models – a variant of the classical transportation problem modeled for determining vehicle transfer between distribution centers, and a variant of the conventional minimum cost network flow problem modeled for determining inventory replenishment and transfer. Experimental results reveal that the proposed algorithm is rather computational effectiveness, and the pooling strategy that considers both vehicles and inventory transfers is a worthy option in designing supply chain operations.