Coordinated inventory-transportation supply chain models

Abstract

Supply chain, which is a flow of materials, information and funds between different parties, is one of the important issues in today's business and industrial sectors. In a supply chain, a vendor is required to produce items to satisfy the needs of buyers. If vendor and buyers operate independently to minimize their own costs, it may not be optimal to the system as a whole. Most of the literature has found that a supply chain can achieve better system cost performance through coordination of vendor and buyers, hence effective coordination plays an important role in the successful operation of supply chains. Chan and Kingsman (2005, 2007) proposed a synchronized cycles model for the coordination of a single-vendor multi-buyer supply chain in which vendor and buyers synchronize the production and ordering cycles so as to minimize the total system cost. The synchronized cycles model performs better than independent optimization as well as common order cycle model developed by Banerjee and Burton (1994) in terms of total system cost. Furthermore, the synchronized cycles model addresses some of the shortcomings of previous coordination models. For example, the model considers vendor as a manufacturer producing an item to supply multiple heterogeneous buyers and tackles the discrete vendor inventory depletion into the model. This issue was rarely addressed in the literature (see Sarmah et. al.(2006)). In the synchronized cycles model, the process of finding the optimal solution involves the determination of production cycle NT of vendor, ordering cycle kiT and ordering time ti of buyers where ki are integer factors of N. Due to the complexity of the model, it is very difficult to find the optimal solution analytically. Chan and Kingsman (2007) proposed a heuristic algorithm to find a "near-optimal" solution. The algorithm has been found to be competitive when compared with genetic algorithm. However, it is believed that there are still rooms for improvement in the algorithm in terms of the "optimal" solution and computational time. Transportation is also a key component in a supply chain. Most of the literature of single-vendor multi-buyer coordination usually assumed that transportation cost is a constant (i.e $/order) for simplicity. Truck capacity and truck transportation cost were not considered. Different transportation modes such as less-than-truckload (LTL) and full-truckload (FTL) have been studied, but are limited to single-vendor single-buyer supply chain. It is rarely mentioned that transportation mode with truck capacity and truck cost are applied to a coordinated single-vendor multi-buyer supply chain. Finally, environmental problem is a key issue nowadays as people become more concerned about environmental performance. However, existing supply chain models which put stress on financial performance did not pay much attention to the environment. For instance, more frequent deliveries can reduce average inventory level in a supply chain but cause more air pollution during transportation. Also, holding too many stocks consume more materials and resources. Hence, raw materials wastage and energy wastage should be taken into consideration in supply chain models. It is worth addressing and incorporating these environmental measures into a coordinated supply chain system.