Integrated purchasing and routing in a propane gas supply chain

This paper addresses the integration of purchasing and routing for a propane gas supply chain. The focus is on the wholesale side of the supply network. Rigorous solution methods using both set partitioning and tabu search are developed for obtaining optimal and near-optimal solutions for the purchasing/routing problem. The proposed methods are applied to a real-world propane distribution problem. The results of the study indicate that the potential annual cost savings through the integration of purchasing and routing decisions can range up to millions of dollars for large distributors. The methods can also be used strategically as an aid in reconfiguring the supply network involving depot locations, tanker fleet sizing, and allocation of capacity at supply terminals. The methodology could also be used to provide decision support for distributing other energy products such as heating oil.