EURO 2024 Copenhagen
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3506. Shortfall Allocation and Safety Stock Optimization for Capacitated Joint Replenishment

Invited abstract in session WC-58: Logistics 2, stream VeRoLog - Vehicle Routing and Logistics.

Wednesday, 12:30-14:00
Room: S07 (building: 101)

Authors (first author is the speaker)

1. Birger Raa
Industrial Systems Engineering and Product Design, Ghent University
2. Tarik Aouam
Center for Sustainable Operations and Logistics in Africa, Mohammed VI Polytechnic University

Abstract

We consider a periodic review inventory system in which multiple customers are jointly and periodically replenished from a single supplier by a vehicle with limited capacity. The customers have stochastic demand, and at every replenishment, their inventory is supposed to be filled up to a so-called ‘base-stock’ level. However, when their cumulative demand between replenishments exceeds the vehicle capacity, it is impossible to replenish all the customers up to their base-stock and shortfall occurs.
When the distribution of this shortfall is approximated with a mass exponential function, closed expressions for the expected inventory holding costs and stockout costs at the customers can be derived. This allows us to optimize the base-stock levels of the customers, minimizing the total holding and stockout costs. As a result, we can evaluate several rules-of-thumb for allocation the shortfall across the customers. Moreover, we can optimize the shortfall allocation in an iterative procedure.
In an extensive computational study, we compare the cost effectiveness of various shortfall allocation rules across a wide range of scenarios where the customers have varying cost parameters and storage capacity limitations. Furthermore, the convergence of the iterative shortfall allocation optimization procedure is inspected, and the accuracy of the approximation is evaluated using simulation experiments.

Keywords

Status: accepted

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