Coordination of Inventory and Shipment Consolidation Decisions: A Review of Premises, Models, and Justification

Abstract

This chapter takes into account the latest industrial trends in integrated logistical management and focuses on recent supply-chain initiatives that enable the integration of inventory and transportation decisions. The specific initiatives of interest include Vendor Managed Inventory (VMI), Third Party Warehousing/Distribution (3PW/D), and Time Definite Delivery (TDD) applications. Under these initiatives, substantial savings can be realized by carefully incorporating an out-bound shipment strategy with inventory replenishment decisions. The impact is particularly tangible when the shipment strategy calls for a consolidation program where several smaller deliveries are dispatched as a single combined load, thereby realizing the scale economies inherent in transportation. Recognizing a need for analytical research in the field, this chapter concentrates on two central areas in shipment consolidation: i) analysis of pure consolidation policies where a shipment consolidation program is implemented on its own without coordination, and ii) analysis of integrated policies where outbound consolidation and inventory control decisions are coordinated under recent supply-chain initiatives. The chapter presents a research agenda, as well as a review of the related literature, in these two areas. Some of the recent findings of the methodological research are summarized, and current and future research endeavors are discussed. By offering a theoretical framework for modeling recent supply-chain initiatives, the chapter highlights some of the many challenging practical problems in this emerging field.