Coordinated Inventory Policy considering Freight Consolidation in Supply Chain

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In this paper, we develop mathematical models for coordinated inventory and transportation decisions for a special type of supply chain with three level supply chain of a manufacturer, warehouse, and customer. Also three inventory policies are considered. We assume that the demand is deterministic and constant. Under an immediate delivery policy, an outbound shipment is released each time a demand is realized. On the other hand, if these shipments are consolidated over time, then more economical outbound freight quantities can be dispatched. By optimizing inventory and freight consolidation decisions simultaneously, we compute the parameters of an integrated inventory transportation policy. The model presented in this study is the minimization of the coordinated total relevant cost. We also apply the existing sharing technique for benefits and losses in two level supply chains to our three level model. The optimal solution procedural steps for the developed model are derived and the effects of compensation policy on the optimal results are also studied with the help of numerical examples.