Combining service frequency and vehicle routing for managing supplier shipments

• The optimization model considers pick-up frequency and spatial clustering jointly.
• The actual cost of a routing solution is approximated without route construction.
• The problem is equivalent to a single-source fixed charge facility location problem.
• Results of numerical experiments show the effectiveness of the model formulation.
• Substantial total cost savings can be achieved in realistic applications.

This paper proposes a new approach to designing inbound material collection routes that considers pick-up frequency and spatial design as joint decisions to minimize total logistics (transportation plus inventory) cost. The clustering-based optimization uses an approximation to the actual cost of a routing solution without actual route construction. We show that the problem is analogous to a single-source fixed-charge facility location problem, and near-optimal solutions can be found using an efficient heuristic algorithm. Tests show the effectiveness of how this model is formulated and a case study demonstrates that substantial total cost savings can be achieved in realistic applications.