Manufacturing parts sourcing with delayed transportation policy

Abstract

We propose a joint inventory and transportation policy for a manufacturer that needs to source multiple parts from a single supplier over a multiperiod planning horizon in order to facilitate its production plan. Instead of shipping trucks from the supplier to the manufacturer immediately whenever an order is given in a period, we allow delaying transportation to the next period in order to decrease the number of truck shipments with low truck loads. At the same time we maintain a minimum safety stock of each part at the manufacturer so that the production plan is not disrupted. We introduce a mixed integer programming model that represents the interdependency between ordering and transportation decisions and minimizes the sum of both transportation and inventory holding costs incurred to the manufacturer under the proposed policy. This model is utilized to improve the parts sourcing operations of a bus manufacturer in Istanbul with estimated sizeable savings on total costs.