Designing a consumer products retail chain inventory replenishment policy with the consideration of transportation costs

During the designing phase of a retail chain, a very important decision appears to fulfil the client service target with the total minimum cost as a trade-off between inventory management policies for each shop and delivery policies from the central warehouse. This balance is the basis for key decisions, such as inventory planning, space allocated to the shops, delivery management and customer responsiveness. In this paper, we (a) analyze and model this problem, including some usual operational constraints at the shop level; (b) apply to a realistic example; and (c) find that, in some instances, total costs can be lowered while increasing customer responsiveness.