Transport inventory optimization

Abstract

A valuable commodity will tie up capital during transportation. A faster means of transport would lower capital costs whereas the transportation costs would increase. The transportation time is also influencing the lead-time and consequently the requirements of safety stock. In this paper we formulate different inventory models in which we are considering transportation costs and holding costs for inventory in transit as well as the usual inventory holding costs, order costs and shortage costs. The decision variables in the general case are velocity, order quantity and safety stock level.