Redesigning distribution operations: A case study on integrating inventory management and vehicle routes design

This paper describes a real-world application concerning the distribution in Portugal of frozen products of a world-wide food and beverage company. Its focus is the development of a model to support negotiations between a logistics operator and retailers, establishing a common basis for a co-operative scheme in supply chain management. A periodic review policy is adopted and an optimisation procedure based on the heuristic proposed by Viswanathan and Mathur is used to devise guidelines for inventory replenishment frequencies and for the design of routes to be used in the distribution process. This provides an integrated approach of the two logistics functions – inventory management and routing – with the objective of minimising long-term average costs, considering an infinite time horizon. A framework to estimate inventory levels, namely safety stocks, is also presented. The model provides full information concerning the expected performance of the proposed solution, which can be compared against the present situation, allowing each party to assess its benefits and drawbacks.