Article ID: | iaor20013733 |
Country: | Netherlands |
Volume: | 129 |
Issue: | 2 |
Start Page Number: | 299 |
End Page Number: | 310 |
Publication Date: | Mar 2001 |
Journal: | European Journal of Operational Research |
Authors: | Geunes Joseph, Zeng Amy Z. |
Keywords: | inventory: order policies |
This paper investigates the impacts inventory shortage policies have on transportation costs in base-stock distribution systems under uncertain demand. The model proposed demonstrates how backlogging arrangements can serve to decrease the variability of transportation capacity requirements, and hence the magnitude of transportation costs, when compared with policies that expedite demand shortages. The model shows how inventory policy decisions directly impact expected transportation costs and provides a new method for setting stock levels that jointly minimizes inventory and transportation costs. The model and solution method provide insights into the relationship between inventory decisions and transportation costs and can serve to support delivery policy negotiations between a supplier and customer that must choose between expediting and backlogging demand shortages.