THE INVENTORY ROUTING PROBLEM Presented by: I.Esra Buyuktahtakin

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

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

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

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

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

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

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

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

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

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

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?

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

Problem Characteristics Considered by Previous Researchers

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

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

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

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

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

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

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