Track: Logistics, Transport and Traffic Management

Abstract

Distribution centers (DCs) usually receive orders from the customers (mostly retail stores) located in its area; and deliver goods in the following day. In order to secure fulfilling all orders every day, the DCs will have to maintain a high level of inventory, which will deteriorate the profitability. As an alternative to high level of inventory, cross filling is, after closing the daily order receipt, to ship the surplus items to other DCs that lacks the same item during the night to improve the order fulfillment rate. The economic justification of such cross filling will depend on the trade-off between extra cost of transshipment and saving of shortage cost. In this paper, we propose an LP model which determines the optimal quantity of items and number of trucks to transship so as to maximize the profit of cross filling for a day. Unlike most existing research on this problem where transshipment cost is proportional to the transshipped quantity, we consider transshipment cost proportional to the number of trucks used for the transshipment, regardless of the quantity loaded in it, which we believe is more realistic. The proposed LP model also allows the ‘simultaneous chain transshipment’, which enables distant locations to supply surplus to the location that faces shortage.