Analyzing trade-offs between transportation, inventory and production costs on freight networks

Dennis E. Blumenfeld, Lawrence D. Burns, J. David Diltz and Carlos F. Daganzo

Transportation Research Part B: Methodological, 1985, vol. 19, issue 5, 361-380

Abstract: The purpose of this paper is to determine optimal shipping strategies (i.e. routes and shipment sizes) on freight networks by analyzing trade-offs between transportation, inventory, and production set-up costs. Networks involving direct shipping, shipping via a consolidation terminal, and a combination of terminal and direct shipping are considered. This paper makes three main contributions. First, an understanding is provided of the interface between transportation and production set-up costs, and of how these costs both affect inventory. Second, conditions are identified that indicate when networks involving direct shipments between many origins and destinations can be analyzed on a link-by-link basis. Finally, a simple optimization method is developed that simultaneously determines optimal routes and shipment sizes for networks with a consolidation terminal and concave cost functions. This method decomposes the network into separate sub-networks, and determines the optimum analytically without the need for mathematical programming techniques.

Date: 1985
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