We consider a distribution system consisting of a single warehouse and many geographically dispersed retailers. Each retailer faces demands for a single item which arise a deterministic, retailer specific rate. The retailers' stock is replenished by a fleet of vehicles of limited capacity, departing and returning to the warehouse and combining deliveries into efficient routes. The cost of any given route consists of a fixed component and a component which is proportional with the total distance driven. Inventory costs are proportional with the stock levels. The objective is to identify a combined inventory policy and a routing strategy minimizing system-wide infinite horizon costs. We characterize the asymptotic effectiveness of the class of so-called Fixed Partition policies and those employing Zero Inventory Ordering. We provide worst case as well as probabilistic bounds under a variety of probabilistic assumptions. This insight is used to construct a very effective algorithm resulting in a Fixed Partition policy which is asymptotically optimal within its class. Computational results show that the algorithm is very effective on a set of randomly generated problems.

Lap Mui Ann Chan, Awi Federgruen, and David Simchi-Levi
Journal Article
Publication Date
Operations Research

Full Citation

Chan, Lap Mui Ann, Awi Federgruen, and David Simchi-Levi
. “Probabilistic analyses and practical algorithms for inventory-routing models.”
Operations Research
, (January 01, 1998):