Optimizing Vendor-Managed Inventory in Multi-Tier Distribution Systems

Abstract

This paper addresses the concept of the vendor-managed inventory (VMI) problem, focusing on the replenishment policy and the vehicle routing problem (VRP) model. These components are integrated to tackle a three-echelon distribution issue comprising a single plant, multiple depots, and multiple retailers, with the primary objective of minimizing transportation and inventory costs within this complex distribution network. A three-phase methodology is proposed to optimize the entire supply chain, from the plant to the final retailer, and its performance is evaluated through computational experiments. This research is motivated by a real-life supply network, highlighting its practical relevance and applicability. To extend the capabilities of existing methods for solving the combined inventory and routing problem, an insertion heuristic is incorporated to enhance vehicle utilization, thereby reducing total costs. Computational results demonstrate the effectiveness of the improved algorithm, indicating that it is sufficiently robust for practical application. Significant cost savings can be achieved with the proposed approach, making it a valuable contribution to the field of supply chain optimization.