Coordinated inventory replenishment and outsourced transportation operations

• Coordinated inventory and transportation management of a supply chain is studied.
• Transportation is outsourced to a third-party logistics company through a contract.
• Continuous review (Q, S) and periodic review (R, T) policies are compared.
• Structural properties that aid policy optimization are developed.
• The settings where a practical periodic policy is also cost efficient are found.

We consider a one-warehouse N retailers supply chain with stochastic demand. Inventory is managed in-house whereas transportation is outsourced to a 3PL provider. We develop analytical expressions for the operating characteristics under both periodic and continuous joint replenishment policies. We identify the settings where a periodic review policy is comparable to a continuous review one. In our numerical test-bed, the periodic policy performed best in larger supply chains operating with larger trucks. We also observed that if the excess utilization charge is less than 25%, outsourcing becomes beneficial even if outsourcing cost is 25% more than the in-house fleet costs.