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Analyzing trade-offs between transportation, inventory and production costs on freight networks

Author

Listed:
  • Blumenfeld, Dennis E.
  • Burns, Lawrence D.
  • Diltz, J. David
  • Daganzo, Carlos F.

Abstract

The purpose of this paper is to determine optimal shipping strategies (i.e. routes and shipment sizes) on freight networks by analyzing trade-offs between transportation, inventory, and production set-up costs. Networks involving direct shipping, shipping via a consolidation terminal, and a combination of terminal and direct shipping are considered. This paper makes three main contributions. First, an understanding is provided of the interface between transportation and production set-up costs, and of how these costs both affect inventory. Second, conditions are identified that indicate when networks involving direct shipments between many origins and destinations can be analyzed on a link-by-link basis. Finally, a simple optimization method is developed that simultaneously determines optimal routes and shipment sizes for networks with a consolidation terminal and concave cost functions. This method decomposes the network into separate sub-networks, and determines the optimum analytically without the need for mathematical programming techniques.

Suggested Citation

  • Blumenfeld, Dennis E. & Burns, Lawrence D. & Diltz, J. David & Daganzo, Carlos F., 1985. "Analyzing trade-offs between transportation, inventory and production costs on freight networks," Transportation Research Part B: Methodological, Elsevier, vol. 19(5), pages 361-380, October.
    • Handle: RePEc:eee:transb:v:19:y:1985:i:5:p:361-380
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