Comparing strategies for addressing delivery shortages in stochastic demand settings

In logistics networks involving one supply point (depot) and several geographically dispersed demand points (e.g., retail stores), delivery shortages will result if the design of delivery routes ignores random period-to-period fluctuations in customer demands. Delivery shortages may be costly enough for the depot to seek strategies to prevent them. A requirement for rational comparison of strategies is quantifying their effects on total supply chain costs. Accurate distance prediction models are developed to help satisfy this prerequisite for the transportaton cost element. These models are integrated into a comparison of strategies on the basis of how these strategies affect inventory and transportation. The focus of findings from the comparison involves identifying the information cost thresholds for accepting/rejecting a demand-responsive strategy. The study's implications for choosing a strategy are presented.