Heavy Traffic Analysis of the Dynamic Stochastic Inventory-Routing Problem

Martin I. Reiman, Rodrigo Rubio and Lawrence M. Wein
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Martin I. Reiman: Bell Laboratories, Lucent Technologies, Murray Hill, New Jersey 07974
Rodrigo Rubio: McKinsey and Company, Mexico City, Mexico
Lawrence M. Wein: Sloan School of Management, M.I.T., Cambridge, Massachusetts 02139

Transportation Science, 1999, vol. 33, issue 4, 361-380

Abstract: We analyze three queueing control problems that model a dynamic stochastic distribution system, where a single capacitated vehicle serves a finite number of retailers in a make-to-stock fashion. The objective in each of these vehicle routing and inventory problems is to minimize the long run average inventory (holding and backordering) and transportation cost. In all three problems, the controller dynamically specifies whether a vehicle at the warehouse should idle or embark with a full load. In the first problem, the vehicle must travel along a prespecified (TSP) tour of all retailers, and the controller dynamically decides how many units to deliver to each retailer. In the second problem, the vehicle delivers an entire load to one retailer (direct shipping) and the controller decides which retailer to visit next. The third problem allows the additional dynamic choice between the TSP and direct shipping options. Motivated by existing heavy traffic limit theorems, we make a time scale decomposition assumption that allows us to approximate these queueing control problems by diffusion control problems, which are explicitly solved in the fixed route problems, and numerically solved in the dynamic routing case. Simulation experiments confirm that the heavy traffic approximations are quite accurate over a broad range of problem parameters. Our results lead to some new observations about the behavior of this complex system.

Date: 1999
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