Distribution strategies that minimize inventory and vehicle routing costs in a two-echelon distribution system

Integrating transportation and inventory decisions has become one of the most studied research areas in distribution systems. This paper considers the two-echelon distribution system containing a single distribution center (DC) and N stores. We assume that the DC and stores perform periodic review and order strategies. We also assume that customer demand at each store is random and follows a known distribution. Our object is to minimize the total cost of transportation and inventory in the supply chain under the restriction of given customer service level. By analyzing the relations of two-echelon inventory costs and transportation cost, this paper presents a heuristic algorithm to determine for each discrete time instant the retailers to be visited and the quantity of product shipped and the route of the vehicle.