Allocating Cost of Service to Customers in Inventory Routing

Okan Örsan Özener (), Özlem Ergun () and Martin Savelsbergh ()
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Okan Örsan Özener: Department of Industrial Engineering, Ozyegin University, Istanbul 34794, Turkey
Özlem Ergun: H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332
Martin Savelsbergh: School of Mathematical and Physical Sciences, University of Newcastle, Callaghan NSW 2308, Australia

Operations Research, 2013, vol. 61, issue 1, 112-125

Abstract: Vendor-managed inventory (VMI) replenishment is a collaboration between a supplier and its customers, where the supplier is responsible for managing the customers' inventory levels. In the VMI setting we consider, the supplier exploits synergies between customers, e.g., their locations, usage rates, and storage capacities, to reduce distribution costs. Due to the intricate interactions between customers, calculating a fair cost-to-serve for each customer is a daunting task. However, cost-to-serve information is useful when marketing to new customers or when revisiting routing and delivery quantity decisions. We design mechanisms for this cost allocation problem and determine their characteristics both analytically and computationally.

Keywords: cost allocation; cost-to-serve; vendor-managed inventory; inventory routing problem (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (17)

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