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A Dynamic Model for Inventory Lot Sizing and Outbound Shipment Scheduling at a Third-Party Warehouse

Department of Industrial Engineering & Engineering Management, The Hong Kong University of Science and Technology, Hong Kong
Department of Industrial Engineering, Texas A&M University, College Station, Texas 77843-3131
Department of Industrial and Systems Engineering, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260, Republic of Singapore
cylee{at}ust.hk
sila{at}iemail.tamu.edu
isejw{at}nus.edu.sg

This paper presents a model for computing the parameters of an integrated inventory replenishment and outbound dispatch scheduling policy under dynamic demand considerations. The optimal policy parameters specify (i) how often and in what quantities to replenish the stock at an upstream supply chain member (e.g., a warehouse), and (ii) how often to release an outbound shipment to a downstream supply-chain member (e.g., a distribution center). The problem is represented using a two-echelon dynamic lot-sizing model with pre-shipping and late-shipping considerations, where outbound cargo capacity constraints are considered via a stepwise cargo cost function. Although the paper is motivated by a third-party warehousing application, the underlying model is applicable in the general context of coordinating inventory and outbound transportation decisions. The problem is challenging due to the stepwise cargo cost structure modeled. The paper presents several structural properties of the problem and develops a polynomial time algorithm for computing the optimal solution.

Subject classifications: Inventory/production, scale-diseconomies/lot-sizing; Transportation, model assignment.
History: Received September 2000; revision received January 2000; revision received October 2002; accepted November 2002.

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