Napaporn Rianthong and Aussadavut Dumrongsiri

pp. 369 - 377

Abstract

We developed a mixed integer linear programming model for an integrated decision problem of production, inventory,
and transportation planning. Our model combines the direct shipment into the production, inventory, and distribution
planning. The objective was to minimize the total operation cost which is comprised of production setup cost, inventory
holding cost, transportation cost, and reorder cost. The model is solved to optimality using the leading optimization software,
IBM ILOG CPLEX (CPLEX), but the software shows a limited capability to solve large size problems. A time-partitioning
heuristic algorithm is proposed to efficiently solve the problem. Numerical experiments are extensively conducted to test the
proposed algorithm. In our numerical experiments, the proposed algorithm can solve many large size problems, whereas
CPLEX fails to solve them. The numerical experiment shows that a company can gain a significant saving by optimally
incorporating the direct shipment. The proposed heuristic algorithm performs well in most cases in terms of a total cost and
the computation time.