A math-heuristic approach for two echelon vendor managed inventory routing problem

Abstract

This paper studies a two-echelon vendor managed inventory routing problem of a honey packager company that delivers packaged products from a single facility to multiple retailers and customers. The objective is creating a supply chain which minimizes the total distribution cost while satisfying customers’ demand on time through retailers. The complex nature of the problem originates from connecting the inventory management and the routing process which makes getting an exact solution to the problem difficult. We propose a mathematical optimization model and develop a three-step clustering-based math-heuristic algorithm to solve the problem since commercial solvers fail to provide high-quality solutions within a given time limit. The performance of the algorithm is tested with randomly generated dimensions. The algorithm yields (on average) 16% improvement compared to objective value performances of the commercial solver.