Abstract
We study a supply chain comprised of a manufacturer owning multiple production lines and a warehouse, and multiple retailers buying from the manufacturer. The manufacturer can choose whether to send products to the retailers directly from loading area using direct shipment or send the product to be stored at the warehouse. If the demand is satisfied from the warehouse, the company can choose the logistic strategy. The company can send the product from the warehouse to a retailer using a direct shipment mode (a truck only visits the retailer) or using milk run mode (a truck visits multiple retailers in a single trip). We develop a mixed integer programming model to find the optimal decisions for production quantities at each production line, the quantities of inventories at the loading area, the warehouse and the retailers, and the transportation strategies to deliver products to retailers in every period. We conduct numerical experiments and then analyze the results. Many managerial insights are drawn for practitioners. Several optimal transportation strategies are observed by mixing between a temporal demand aggregation strategy, the milk run strategy and the direct shipment strategy.
Highlights
Transportation cost becomes an important issue for every business because it is the main proportion of logistics cost
We study a supply chain system consisting of a manufacturer owning multiple production lines and a warehouse, and multiple retailers buying from the manufacturer
The manufacturer can choose whether to send the product to the retailers directly from loading area using direct shipment or send the product to be stored at the warehouse
Summary
Transportation cost becomes an important issue for every business because it is the main proportion of logistics cost. To minimize the operational cost, a company must synchronize all the planning of production, inventory and distribution strategies at the same time. A direct shipment, a direct transport of finished product from a manufacturer to a retailer without stopping at any intermediate facility, can help reduce the logistics cost, material handling cost and inventory holding cost at warehouse. The temporal aggregation will make unit transportation cost smaller at the expense of lower responsiveness or larger inventory holding cost. The milk run distribution will allow retailers to order products in a smaller lot size, thereby lowering inventory holding cost without increasing the transportation cost. As many distribution strategies can be adopted, it is not clear when a supply chain manager should use to lower the total supply chain cost. To provide the guideline of distribution strategies integrated with production plan, we develop a mathematical model called Mixed Integer Linear Programming Model, solve the model using optimization software called IBM ILOG CPLEX, and observe the optimal distribution strategies under various scenarios
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