Contracts Ii Outline Anderson

							Inventory routing problems
- Combined inventory management and routing

          Henrik Andersson
              Arild Hoff
         Marielle Christiansen
              Geir Hasle
          Arne Løkketangen
                           Outline
•   Background
•   Industrial aspects
•   Literature review and classification
•   Industrial aspects in the literature
•   Trends and future directions




                DOMinant workshop - Molde - September 20-22 2009
                   Background
• DOMinant is a collaboration between Molde
  University College, Norwegian University of
  Science and Technology and SINTEF
• Discrete optimization models in maritime and
  road-based transportation
  – Fleet size and mix vehicle routing problem
  – Inventory routing problem
• First task : Get familiar with the research and
  write a survey on each problem

               DOMinant workshop - Molde - September 20-22 2009
                               Surveys
• Focused surveys with a broader purpose
   – Overview of the diverse landscape of combined inventory
     management and routing
   – Relation and interconnection between science and practice
   – Practitioners can see the benefit of using advanced decision
     support systems in complex situations
   – Inspire researchers to dig deeper into the field and find new and
     exciting challenges
   – Discuss both land-based and maritime applications

• Mainly based on the research literature
   – Own experience
   – No field study or industry involved in the writing process


                    DOMinant workshop - Molde - September 20-22 2009
            Combining operations I
• Combining operations within the supply chain
   –   Increased efficiency
   –   Economical benefits
   –   Flexibility in services
   –   Improved robustness

• Which operations to integrate?
• Who should plan the integrated operations?
• For which products is it interesting to integrate
  operations?
• When should operations be integrated?

                     DOMinant workshop - Molde - September 20-22 2009
           Combining operations II
• Which operations to integrate?
   – Inventory ≈ A buffer between processes to even out variations and
     handle uncertainty
   – Managing the conflicting goal between supply and demand
       • Procurement – Inventory – Production (intra)
       • Production – Inventory – Sales (intra)
       • Inventory – Transportation – Inventory (intra and inter)

             Supply




                                                                         Demand


                      DOMinant workshop - Molde - September 20-22 2009
           Combining operations II
• Which operations to integrate?
   – Inventory ≈ A buffer between processes to even out variations and
     handle uncertainty
   – Managing the conflicting goal between supply and demand
       • Procurement – Inventory – Production (intra)
       • Production – Inventory – Sales (intra)
       • Inventory – Transportation – Inventory (intra and inter)

             Supply



                          Inventory
                                                                         Demand


                      DOMinant workshop - Molde - September 20-22 2009
                Motivation
Supplier                                                      Customer
                            Producer

                                                              Customer
                            Producer

Supplier                                                      Customer
                            Producer

                                                              Customer




           DOMinant workshop - Molde - September 20-22 2009
                Motivation
           Control                                   Execute
Supplier                                                       Customer
                            Producer

                                                               Customer
                            Producer

Supplier                                                       Customer
                            Producer

                                                               Customer




           DOMinant workshop - Molde - September 20-22 2009
                    Motivation
                                                         Control
                                                         Execute
    Supplier                                                       Customer
                                Producer

                                                                   Customer
                                Producer

    Supplier                                                       Customer
                                Producer

                                                                   Customer
• Economical benefits
• Flexibility in services
• Improved robustness

               DOMinant workshop - Molde - September 20-22 2009
       Combining operations III
• Who should plan the integrated operation?
  – The producer
  – A transport provider
  – A third actor




              DOMinant workshop - Molde - September 20-22 2009
       Combining operations IV
• For which products is it interesting to
  integrate operations?
  – High value products
  – Perishable products
  – High impact products




              DOMinant workshop - Molde - September 20-22 2009
          Combining operations V
• When should operations be integrated?
  – Autonomous actors in the chain
     •   Economically beneficial at the system level
     •   Possible to split the benefits in an agreeable way
     •   Long-term relationship
     •   Willingness to share information and data




                   DOMinant workshop - Molde - September 20-22 2009
       Current industrial practice
• Inventory management and routing are treated as
  separate operations
   – manual planning is still used at many companies

• There are very few, if any, commercial optimization-
  based systems in current use

• Several integrated systems are under development for
  companies in the maritime sector
   – The liquefied natural gas industry mainly due to an
     extraordinary strong growth in this high value business
                  DOMinant workshop - Molde - September 20-22 2009
         Research perspective
• Looking at the coordination of inventory
  management and routing, it is clear that the
  combined problem is a long-term, dynamic
  problem that is inherently stochastic

• Since long-term, dynamic and stochastic
  problems are extremely difficult to solve, the
  approaches found in the literature have
  simplified the problem in one way or another

              DOMinant workshop - Molde - September 20-22 2009
                             Classification
Characteristic                                         Alternatives
Time             Instant                 Finite                 Infinite
Demand           Deterministic           Stochastic
Topology         One-to-one              One-to-many            Many-to-many
Routing          Direct                  Multiple               Continuous
Inventory        Fixed                   Stock-out              Lost sale       Back-order
Fleet            Homogeneous             Heterogeneous
Fleet size       Single                  Multiple               Unconstrained
Mode             Road-based              Maritime               Generic




                           DOMinant workshop - Molde - September 20-22 2009
                             Finite
• More than one visit at a customer may be
  needed
• Common characteristics
  – Deterministic demands
  – Fixed inventory restrictions
• Road-based, maritime and generic
  – Many-to-many topology without depot
  – Few deliveries
  – Heterogeneous fleet

               DOMinant workshop - Molde - September 20-22 2009
                           Finite II
• Very few exact approaches
  – Christiansen and Nygreen, 2005
     • Robust plans, penalize closeness to inventory limits
     • Path-based formulation
     • Branch-and-price
  – Archetti et al., 2007
     • Order-up-to-level policy, one vehicle
     • Arc-flow formulation
     • Branch-and-cut

                DOMinant workshop - Molde - September 20-22 2009
                           Finite III
• MP-based and neighborhood-based heuristics
  – Arc-flow
     • Miller, 1987 ; Al-Khayyal and Hwang, 2007 ; Savelsberg and
       Song, 2008 ; Yugang, 2008
  – Path-flow
     • Bell et al., 1983 ; Persson and Göthe-Lundgren, 2005
  – Neigborhood-based
     • Rusdiansyah and Tsao, 2005 (Tabu search) ; Abdelmaguid
       and Dessouky, 2006 (GA) ; Alegre et al., 2007 (Scatter
       search) ; Dauzère-Pérès, 2007 (Memetic) ; Savelsbergh and
       Song, 2007 (GRASP) ; Hemmelmayr et al., 2008 (VNS)

                 DOMinant workshop - Molde - September 20-22 2009
                          Finite IV
• Heuristics : Main approaches
  – Allocate first – route second
     • Carter et al., 1996 ; Campbell and Savelsbergh, 2004
  – Periodic and delivery patterns
     • Gaur and Fisher, 2004 ; Rusdiansyah and Tsao, 2005 ;
       Alegre et al., 2007
  – Imposing different inventory policies
     • Kim and Kim, 2000 ; Bertazzi et al., 2002



                DOMinant workshop - Molde - September 20-22 2009
             Industrial aspects I
• Products having a relatively high consumption
  rate.
  – Gas, Bell et al., 1983, Golden et al., 1984, Campbell and
    Savelsbergh, 2004 ; chemicals, Miller, 1987 ; automobile
    components, Blumenfeld et al., 1987, Alegre et al., 2007 ;
    ammonia, Christiansen, 1999 ; groceries, Gaur and Fisher,
    2004 ; bitumen, Persson and Göthe-Lundgren, 2005 ;
    frozen products, Custódio and Oliveira, 2006 ; calcium
    carbonate slurry, Dauzère-Pérès et al., 2007 ;
    petrochemical products, Al-Khayyal and Hwang 2007 ;
    blood, Hemmelmayr et al., 2008
                 DOMinant workshop - Molde - September 20-22 2009
              Industrial aspects II
• The uniqueness of the industrial cases is
  important
   – Factors not included in already existing models
      • Can either complicate or sometimes simplify the problem

      • Knowledge about the number of customers that are
        normally visited on a route to simplify the generation of
        routes
      • Using the consumption/production rates and inventory
        bounds to explicitly model each possible port call and to
        derive time windows for each visit
      • Characteristics from the current manual planning

                  DOMinant workshop - Molde - September 20-22 2009
              Industrial aspects
• Most research where industrial problems are focused
  holds elements of heuristics
   – Exact methods terminated prematurely
   – Neighborhood-based heuristics and metaheuristics

• The diversity of methods used shows many paths for
  designing algorithms for industrial cases

• Knowledge about the case, and the delicate use of this
  knowledge when formulating and solving the problem
  shines through in most applications

                 DOMinant workshop - Molde - September 20-22 2009
             Status summary
• Gain in interest due to increased focus on
  supply chain management
• Many different problems, no clear definition
• A gap between research and academia
• Little work on exact methods




              DOMinant workshop - Molde - September 20-22 2009
            Trends in industry
• Data availability, visibility and information
  sharing
• Increased cooperation along the supply chain
• Increased globalization
• Acquisitions and mergers
• Extended transport contracts, 3PL, 4PL
• A number of DSSs under development
• Environmental focus

              DOMinant workshop - Molde - September 20-22 2009
    Trends in the research literature
•   Richer models
•   Uncertainty and risk
•   Industrial cases
•   Advanced heuristics




                DOMinant workshop - Molde - September 20-22 2009
      Future research directions
• Richer models and integrated systems
• Focus on uncertainty, robustness and
  flexibility
• From cost minimization to profit maximization
• Better benchmarks




             DOMinant workshop - Molde - September 20-22 2009