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On the integration of production and distribution: Economic order and production quantity implications

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  • Hall, Randolph W.

Abstract

Economic Order Quantity (EOQ) and Economic Production Quantity (EPQ) models have been used for well over 50 yr to optimize batch quantities in transportation and production. Traditionally, EOQ and EPQ models have treated production and transportation batch sizes as independent decisions. The objective of this paper is to examine how attributes of the distribution system affect inventory accounting and EOQ/EPQ decisions. The paper develops a range of "characteristic inventory curves" to represent situations encountered in integrated production/ distribution systems. The paper then shows how system attributes define the inventory curve, and the resulting EOQ/EPQ equation. Conclusions include: (1) accounting for inventory at both the origin and destination can yield significantly different EOQ/EPQ results, but relatively modest regret; and (2) failure to account for consolidation effects among multiple products sent to a common destination can lead to substantial errors.

Suggested Citation

  • Hall, Randolph W., 1996. "On the integration of production and distribution: Economic order and production quantity implications," Transportation Research Part B: Methodological, Elsevier, vol. 30(5), pages 387-403, October.
    • Handle: RePEc:eee:transb:v:30:y:1996:i:5:p:387-403
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    References listed on IDEAS

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    1. Daganzo, Carlos F., 1985. "Supplying a single location from heterogeneous sources," Transportation Research Part B: Methodological, Elsevier, vol. 19(5), pages 409-419, October.
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    Cited by:

    1. Hall, Randolph W. & Sabnani, Vikas C., 2002. "Control of vehicle dispatching on a cyclic route serving trucking terminals," Transportation Research Part A: Policy and Practice, Elsevier, vol. 36(3), pages 257-276, March.
    2. Kai-Leung Yung & Jiafu Tang & Andrew W. H. Ip & Dingwei Wang, 2006. "Heuristics for Joint Decisions in Production, Transportation, and Order Quantity," Transportation Science, INFORMS, vol. 40(1), pages 99-116, February.
    3. Chiu, Yuan-Shyi Peter & Chen, Yung-Chung & Lin, Hong-Dar & Chang, Huei-Hsin, 2014. "Combining an improved multi-delivery policy into a single-producer multi-retailer integrated inventory system with scrap in production," Economic Modelling, Elsevier, vol. 39(C), pages 163-167.
    4. Sheu, Jiuh-Biing & Chen, Yenming J., 2014. "Transportation and economies of scale in recycling low-value materials," Transportation Research Part B: Methodological, Elsevier, vol. 65(C), pages 65-76.
    5. Piewthongngam, Kullapapruk & Pathumnakul, Supachai & Homkhampad, Suphakan, 2013. "An interactive approach to optimize production–distribution planning for an integrated feed swinecompany," International Journal of Production Economics, Elsevier, vol. 142(2), pages 290-301.
    6. Pundoor, Guruprasad & Chen, Zhi-Long, 2009. "Joint cyclic production and delivery scheduling in a two-stage supply chain," International Journal of Production Economics, Elsevier, vol. 119(1), pages 55-74, May.
    7. Lin, Chinho & Lin, Yihsu, 2007. "A cooperative inventory policy with deteriorating items for a two-echelon model," European Journal of Operational Research, Elsevier, vol. 178(1), pages 92-111, April.

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