Inventory routing problems are very different from vehicle routing problems. Vehicle routing problems occur when customers place orders and the delivery company, on any given day, assigns the orders for that day to routes for trucks. In inventory routing problems, the delivery company, not the customer, decides how much to deliver to which customers each day. There are no customer orders. Instead, the delivery company operates under the restriction that its customers are not allowed to run out of product.
Another difference is the planning horizon. Vehicle routing problems typically deal with a single day, with the only requirement being that all orders have to be delivered by the end of the day. Inventory routing problems deal with a longer horizon. Each day the delivery company makes decisions about which customers to visit and how much to deliver to each of them, while keeping in mind that decisions made today impact what has to be done in the future. The objective is to minimize the total cost over the planning horizon while making sure no customers run out of product.
The flexibility to decide when customers receive a delivery and how large these deliveries will be may significantly reduce distribution costs.
Application areas:
Industries: a.o. Oil, Gas and Chemicals
Solutions areas: Demand Planning and Inventory Routing
ORTEC contribution:
ORTEC solutions like ORTEC Shortrec and ORTEC Transportation and Distribution, ORTEC LEO (SAP embedded load building and vehicle routing)
ORTEC references a.o.:
Primagaz
ORTEC publications:
P. Hulshof, ORTEC: How VMI can be successful in gas distribution: a solution methodology for the inventory routing problem in gas distribution Download Thesis (pdf)
ORTEC news:
ORTEC employee wins award for research into VMI and Inventory Routing
More information: Georgia Tech
Related topics:
VMI
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