An inventory control model for modal split transport: a tailored base-surge approach

Abstract

In recent years companies have identified the benefits of modal shift from truck to train or barges, particularly due to transportation cost saving and emission reduction reasons. In addition, governments strongly support modal changes. However, the adaptation of modal split in the real world has been very slow. Data from EUROSTAT demonstrates that since 1991, the modal split among road, rail and waterway of EU15 countries remain nearly the same.

We investigate this dilemma together with a leading FMCG company, who currently uses mainly truck transportation and searches for modal split solutions for the delivery from her Plant to Distribution Centers (DC). The practical challenge is here: transportation is only part of the holistic supply chain and the goal of modern companies is to integrate and optimize all activities in the system including transportation, inventory control, demand forecasting, etc. Without a thorough understanding of the influence on the whole system, managers hesitate to implement local optimizations in transportation only.

In order to further analyze the key determinants of the modal split as a holistic supply chain problem, we study a single-stage inventory model: a DC orders from a Plant via two modes: a fast mode with full flexibility in delivery quantity, zero lead time (overnight shipments) but also the expensive transportation cost; and a slow mode with fixed loading quantity every n periods and a lower transportation cost. The objective is to minimize the expected total cost of transportation and inventory mismatch in the long run by deciding the constant delivery quantity via the slow mode, and the order-up-to-levels of the fast mode, e.g. (Q,S1,S2,…Sn).

Unfortunately, this model is too complicated to allow analytic solutions. The closest mathematical analysis is the TBS policy studied by (Allon, G., Van Mieghem, J.A., 2010) and (Janakiraman et al., 2014), which is a special case with n=1 of our model. Our model solves a more generalized problem than TBS because slow mode like rail or barge often does not operate every day because of practical constraints.

About the presenter

Chuanwen Dong joined Kühne Logistics University as a PhD candidate in the field of Supply Chain and Operations Management in April 2013.

He holds a Master’s Degree of Information and Telecommunication Engineering from Zhejiang University, and a Master’s Degree of Economics and Management Science from Humboldt University.

Before joining KLU, he has accumulated 3.5 years experiences in the logistics industry, mainly in international operations and business development – he was an Account Manager in Sinotrans, China’s largest comprehensive logistics corporation.

Chuanwen Dong is a member of Mensa.

More info about Chuanwen Dong

About the Seminar

The KLU research seminar series is a regular meeting of PhD students, Post-Docs and professors who conduct research in the field of logistics and supply chain management. The research seminar is open to the public and we happily welcome guests.