A Branch‐and‐Cut Algorithm Using a Strong Formulation and an A Priori Tour‐Based Heuristic for an Inventory‐Routing Problem

We address a vendor‐managed inventory‐routing problem where a supplier (vendor) receives a given amount of a single product each period and distributes it to multiple retailers over a finite time horizon using a capacitated vehicle. Each retailer faces external dynamic demand and is controlled by a deterministic order‐up‐to level policy requiring that the supplier raise the retailer's inventory level to a predetermined maximum in each replenishment. The problem is deciding on when and in what sequence to visit the retailers such that systemwide inventory holding and routing costs are minimized. We propose a branch‐and‐cut algorithm and a heuristic based on an a priori tour using a strong formulation. To the best of our knowledge, this study is the first to consider a strong formulation for the inventory replenishment part of inventory‐routing problems. Computational results reveal that the new branch‐and‐cut algorithm and heuristic perform better than those noted in the literature.