1. THE INVENTORY ROUTING PROBLEM
Presented by:
I.Esra Buyuktahtakin

2. OUTLINE Vendor Managed Inventory Replenishment
Inventory Routing Problem
Review of Related Research
Solution Approaches
Conclusion

3. Conventional Inventory Management
Customer
monitors inventory levels
places orders
Vendor
manufactures/purchases product
assembles order
loads vehicles
makes deliveries
You call - We haul
Savelsbergh,2003

4. Problems with Conventional Inventory Management
Large variation in demands on production and transportation facilities
production costs
transportation costs
inventory costs
workload balancing
utilization of resources
urgent vs nonurgent orders
setting priorities
shortage costs
Savelsbergh,2003

5. Vendor Managed Inventory
Customer
trusts the vendor to manage inventory
Vendor
monitors customer’s inventory
controls inventory replenishment & decides
which customers to replenish
when to deliver
how much product
You rely- We supply
Savelsbergh,2003

6. Advantages of VMI Win - Win Customer Vendor
less resources for inventory management
assurance that product will be
available when required
Vendor
more freedom in when & how to manufacture
product and make deliveries
better coordination of inventory levels
at different customers
better coordination of deliveries to
decrease transportation cost
Win - Win

7. Inventory Routing Problem
Inventory routing problem is one of the core problems that has to be solved when implementing VMI
IRP adresses the coordination of inventory management and transportation

8. Inventory Routing Problem
Customer Satisfaction
product availability
timeliness and consistency of the delivery
ease of placing orders
IRP (when solved) provides improvements on these factors

9. Applications of IRP Industrial Gases air products distribution
carbon black distribution
Petrochemical industry
gas stations
Automotive Industry
parts distribution
Food Industry
Blood collection

10. Inventory Routing Problem
single / multiple facilities
single / multiple customers
single / multiple products
planned time horizon
set of limited / unlimited homogenous vehicles of capacity Q
Cost elements
Transportation cost
Shortage cost
Inventory Holding cost

11. Inventory Routing Problem
Objective
Minimize distribution costs without causing any stock-outs over a planning period or
Maximize the total profit (revenue minus costs) over a planning period

12. Inventory Routing Problem
It is a challenging and intriguing problem that requires the integration of inventory management and transportation decisions
Three decisions have to be made:
When to deliver?
How much to deliver?
Which delivery routes to use?

13. Inventory Routing Problem
In real life IRP is a long term dynamic and stochastic control problem
So, it is extremely difficult to solve
Simplifying assumptions are considered in the earlier studies

14. Problem Characteristics Considered by Previous Researchers

15. Solution Approaches Deterministic Stochastic
Based on average product usage
Stochastic
Based on probability distribution of product usage
future usage amount is random
current inventories are modeled as known

16. Deterministic Solution Approaches
Two Phase Approach
Phase I: Determine which customers should receive a delivery on each day of the planning period and how much
Phase II: Construct the precise delivery routes for each day
Savelsbergh et al.,2000

17. Deterministic Solution Approaches
Two Phase Approach
Phase I: Integer Program
Phase II: Insertion Heuristic
Savelsbergh et al.,2000

18. Solution Approaches Short term single day a couple of days
In the previous studies many solution approaches are proposed to solve short term planning problem
single day
an extension of VRP
based on latest inventory reading and predicted usage for that day
much simpler
useful when demand is unpredictable
a couple of days
much harder
much better solutions
formulated as mathematical programs
solved using decomposition techniques, such as Lagrangean relaxation

19. Solution Approaches Long Term Reduced
some researchers model the objective of maximizing the profit over a long period of time
Reduced
consider the proper projection of a long term objective into a short term planning problem

20. Some topics to investigate
The effects of the changes in
operating modes
ex: changes in cost factors
The importance of the factors which affect the customer selection in a given route
Delivery time windows
restricts when a customer can receive a delivery

21. THANK YOU
Q & A