Multi-product (, T) inventory policies with short-shipping: Enabling fixed order intervals and well-utilized vehicles under random demand

We devise and analyze a new (R, T) policy that allows for short shipments (shipping less than the desired quantities) when the total order quantity would otherwise exceed a truckload. All products are ordered every T time units, with a target order-up-to level of Ri for each product i, where T and the Ri values can be decided. By allowing short shipments, it is possible to maintain both a fixed order interval, which manufacturers often prefer because it facilitates their production planning (thereby reducing their costs indirectly), as well as relatively high utilization of truck capacity, which is a key concern of customers when they face transportation economies of scale and thus prefer that orders utilize the truck capacity well. We develop an approach to find near-optimal control parameters for our proposed (R, T) policy with short-shipments. In a numerical study, we show that our proposed policy performs comparably to a (Q, S) policy that roughly mimics how customers would order if they were concerned about filling a truck when placing an order. Thus, the proposed (R, T) policy can be used in place of a continuous review policy, offering the potential for better coordination between the customer and manufacturer when the manufacturer prefers fixed order timing.