APPLICATION OF VENDOR MANAGED INVENTORY STRATEGY IN INVENTORY LOCATION ROUTING PROBLEMS
Abstract
Incorporating inventory, location, and routing decisions in distribution networks planning may yield considerable cost reduction. Inventory strategy also play a role in determining the cost incurred in the network. This paper compares the classical Inventory Location Routing Problem (ILRP), with the ILRP which adopts the Vendor Managed Inventory (VMI) strategy. A mathematical model is developed for the problem, with an objective that minimizes the total cost. Three instances of different sizes (10, 30, and 50 customers) are solved; to study the effect of applied inventory strategy on the total cost for different cost parameters. The parameters under consideration are: transportation cost from factory to depots, vehicle issuance cost, travel cost per unit travel distance, holding cost at the customer and at the depot, number of vehicles available at every depot, and vehicle capacity. An improved GA is used to solve the problem. The results show that, adopting the VMI strategy outperforms the classical LRP strategy at high travel cost per unit travel distance, and at low unit inventory holding cost at the customer.
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