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Smart inventory and delivery network between suppliers and retailers

Thursday, November 30, 2017

Smart inventory routing problem and environmental impact

In a paper recently published in the Journal of Transportation Research Part E: Logistics and Transportation Review PostDoc Hamid R. Sayarshad and Prof. H. Oliver Gao are the first to reveal novel potential for energy saving and emission reduction using smart inventory and delivery network between suppliers and retailers.

Combining inventory management and vehicle routing problems yields a complex optimization problem in logistics called the inventory routing problem. To gain a competitive advantage, suppliers can reduce the total cost of their operations by optimizing vehicle routing and inventory decisions simultaneously instead of optimizing them separately. To make these decisions jointly, what is needed is a smart inventory routing strategy that combines the inventory holding, replenishment, and lost-sales costs in the context of a flexible dispatch policy.

Gao's and Sayarshad's research focused on dynamic approach for a supplier who has to deliver products to a number of retailers while maximizing social welfare through dynamic pricing that accounts for customer waiting times, inventory holding, lost-sales costs, and delivery costs. Their novel approach presents a valuable self-regulating tool for suppliers, as it would allow for a more uniform and effective utilization of production resources, which would in turn lead to reductions in inventory holding and production costs. Suppliers would be able to achieve additional savings in the form of reduced transportation costs by managing demand, identifying optimal routes, and increasing the use of full-truckload shipments. Thus, such a policy can have a significant effect on the environment and energy savings.

Reference:
Sayarshad, H.R. and Gao, H.O., 2017, A non-myopic dynamic inventory routing and pricing problem, Transportation Research Part E: Logistics and Transportation Review, 109, 83-98.

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