Cost Effectiveness of Postponed Routing Decisions in a Supply Chain

Abstract

This paper examines the cost-reduction effect of postponed routing

decisions in a two-echelon supply chain. When a delivery vehicle leaves

the warehouse with system replenishment quantities, it sequentially

makes routing decisions to choose the next retailer to visit. To measure

this effect this paper studies combined vehicle routing and inventoryallocation

policies designed to minimize total expected purchasing,

inventory-holding and backordering cost/period for a one-warehouse Nretailer

symmetric distribution system. Using a numerical study, we

demonstrate that optimal dynamic routing and allocation policies can

significantly reduce the inventory-management costs associated with

fixed routing and dynamic allocation in medium-to-large customer

demand-variance scenarios.