Optimization in inventory-routing problem with planned transshipment: A case study in the retail industry

Logistics is a science widely recognized as a value-added component for organizations and their products and services as it optimizes the use of resources, minimizes costs and maximizes level of service by coordinating activities such as transportation, inventory management and material handling. In traditional systems, transportation streams from one echelon of the supply chain to the next. Systems that are more flexible allow transshipment movements within an echelon, enabling the sharing of inventories among wholesalers and consequently reducing inventories and handling costs without changing the service level. This paper introduces a multi-period, multi-product Inventory-Routing Problem with planned Transshipment (IRPT). The novelty with regard to existing approaches is that transshipment movements are performed by the same vehicles that are distributing from the factory, meaning that they are subjected to the same capacity, time and cost restrictions. We present an exact formulation and develop a metaheuristic for the problem. The methods are applied to a real large-scale Brazilian retail industry producing a reduction of 9% in logistics costs and 70% in inventory level compared to the existing operation.