Article ID: | iaor20131149 |
Volume: | 10 |
Issue: | 1 |
Start Page Number: | 1 |
End Page Number: | 20 |
Publication Date: | Feb 2013 |
Journal: | Computational Management Science |
Authors: | Bertazzi Luca, Cherubini Simona |
Keywords: | demand, simulation: applications |
We study a logistic system in which a supplier has to deliver a set of products to a set of retailers to face a stochastic demand over a given time horizon. The transportation from the supplier to each retailer can be performed either directly, by expensive and fast vehicles, or through an intermediate depot, by less expensive but slower vehicles. At most one time period is required in the former case, while two time periods are needed in the latter case. A variable transportation cost is charged in the former case, while a fixed transportation cost per journey is charged in the latter case. An inventory cost is charged at the intermediate depot. The problem is to determine, for each time period and for each product, the quantity to send from the supplier to the depot, from the depot to each retailer and from the supplier to each retailer, in order to minimize the total expected cost. We first show that the classical benchmark policy, in which the demand of each product at each retailer is set equal to the average demand, can give a solution which is infinitely worse with respect to the optimal solution. Then, we propose two classes of policies to solve this problem. The first class, referred to as