Industrial aspects and literature survey: Combined inventory management and routing

Abstract

This paper describes industrial aspects of combined inventory management and routing in maritime and road-based transportation, and gives a classification and comprehensive literature review of the current state of the research.

The literature is contrasted with aspects of industrial applications from a constructive, but critical, viewpoint. Based on the status and trends within the field, future research is suggested with regard to both further development of the research area and industrial needs. By highlighting the industrial aspects, practitioners will hopefully see the benefit of using advanced decision support systems in complex situations related to combined inventory management and routing in their business. In addition, a classification and presentation of the research should help and motivate researchers to further focus on inventory management and routing challenges.

Introduction

The entire manufacturing business, from the extraction of raw materials through production at various stages in the supply chain to the end customers, has witnessed a rising need for efficient behavior due to increased competition and reduced profit margins. The whole chain is affected, and both production actors and service providers in the transport industry are thus facing a more challenging situation than just a few decades ago. In this situation, many companies have been forced to change their focus from optimizing its own business to plan for the benefit of the whole chain. Thus we experience that the competition today is rather between supply chains than between autonomous actors in the supply chain. This has resulted in an increased collaboration between actors within a chain. Some of the companies, who earlier negotiated about prices and tariffs, are today sharing information in order to enhance overall performance.

Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed at the right quantities, to the right location, and at the right time, in order to minimize system-wide costs while satisfying service level requirements [111]. This involves a set of management activities like purchasing, inventory control, production, sales and distribution [48]. The overall goal of supply chain management is to integrate organizational units and coordinate flows of material, information and money so that the competitiveness of the supply chain is improved [116]. Normally the production facilities are found in the beginning of the supply chain, while the consumption facilities exist in the last part of the chain.

In this paper we will emphasize the processes and decisions related to inventory management and routing, and mainly the combination of these activities. Since this is a rich and important field in itself and due to the extent of the survey, related areas, such as production planning and purchasing are not covered. The focus will thus be on the parts of the supply chain consisting of the transportation between production and consumption facilities and the inventory management at some or all of these facilities. Often, inventory management is necessary to consider in just one type of facilities; either production or consumption.

In industry, we observe many cases where one actor is responsible for both transportation and inventory management at one or both ends of a transportation leg. Several transportation companies wish to extend their decision-making area to include inventory management of their customers. By doing this, they can achieve better utilization of their vehicle fleet and offer better price and service quality to their customers. Moreover, this policy gives the production companies the possibility to concentrate on their core business and outsource procurement and transportation. On the other hand, several production companies want to manage the transportation function themselves to remain in power and control. In practice, the actor responsible for the coordinated planning can either be the producer, consumer or the transportation company depending on the type of business. For instance, vertically integrated companies are often responsible for the internal transportation themselves.

Independent of the responsible actor of the integrated planning task, inventory management and routing have traditionally been managed separately in industry. However, more and more supply chains now take advantage of the possibility to synchronize production and inventories at two consecutive facilities. A well established policy in industry and the literature (see for instance [41]), is to introduce Vendor managed inventory (VMI). Here, the vendor is responsible for all decisions regarding product inventories at its customers. As a result, the control of replenishment is placed at the vendor instead of its customers. These policies allow a vendor to choose the timing and size of deliveries. In exchange for this freedom, the vendor agrees to ensure that its customers are never out of stock. In the literature, the VMI concept is often explained and discussed with vendors as the manufacturers or suppliers and the customers as retailers. Ideally, the actors that are practicing VMI should integrate inventory management and transportation planning, but this is not always the case in reality. One reason may be the lack of support from many of the enterprise resource planning (ERP) systems and other advanced planning systems currently on the market. To the best of our knowledge, no commercially available systems provide decision support for combined inventory management and routing.

There is a large variety of planning problems for combined inventory management and routing. This paper is confined to problems with the following common characteristics:

• The planning is at a tactical and/or operational level.

• One actor in the supply chain is responsible for both the transportation and the inventory management at one or both ends of the transportation leg.

• At the sites where inventory management is necessary, the transported products are produced and/or consumed.

• Inventory capacities are given, together with production and consumption characteristics. Both production and consumption might be given as input or are decision variables in the planning process.

• The problem consists of designing a routing and scheduling plan with regard to inventory management at the relevant facilities, while minimizing the relevant costs from this part of the supply chain.

This survey paper covers the combined inventory management and routing field seen from an operations research (OR) perspective. Altogether, we have found more than 90 scientific papers that address this combination, consisting of both case studies based on real applications and theoretical contributions on idealized models. Further, several pure surveys on the topic exist; see for instance [61], [16], [105], [93]. In addition, there are short literature reviews in several of the technical papers describing research related to combined inventory management and routing. Even though relatively recent surveys exist on the topic, no survey paper focuses on relating the existing literature to industrial aspects in a general way.

The purpose is to give an overview of the diverse landscape of combined inventory management and routing. Our hope is not only to survey what has been published within the field, but also the relation and interconnection between science and practice. By highlighting the industrial aspects, we believe that practitioners can see the benefit of using advanced decision support systems in complex situations related to combined inventory management and routing in their business. We also think that a clear classification and presentation of the research can help and inspire researchers to dig deeper into the field and find new and exciting challenges.

The scope is combined inventory management and routing problems within road-based and maritime goods transportation. Compared to airborne and rail transportation, both road-based and maritime transportation are more often concerned with the combined aspects in practice. To our knowledge, no literature on combined inventory management and routing exists within airborne or rail transportation. The case studies reported in previous surveys are concentrated on road-based transportation, while maritime transportation is barely mentioned. This review is exhaustive also on the maritime side. Differences and similarities between the two selected modes will be presented. This survey will be given with a critical eye on the content of the research. The literature is compared with the needs from industry. Further, the paper discusses trends in research and industry within the area and points to needs for future research.

The rest of the paper is organized as follows. Section 2 addresses some important industrial aspects related to combined inventory management and routing problems. In Section 3, we discuss the combined inventory management and routing problems in depth and come up with a classification of the literature that will be used when the literature is reviewed in Section 4. Both problem types and solution methods are discussed. Important trends and perspectives on future developments of the research in this area and the need for optimization-based decision-support systems in the industry with their changing environment are discussed in Section 5. This section also criticizes the existing research described in the literature and suggests future research with regard to both further development of the research area and industrial needs. Finally, a summary and some concluding remarks follow in Section 6.