CHOICE OF TRANSPORT SERVICE: AN INVENTORY THEORETIC APPROACH

Abstract

For many reasons, it is rare, if not impossible, that one finds a supplier who fulfills his promise regarding delivery date on every shipment. The impact of this delivery lateness and uncertainty is that the consignee has to invest more in inventory operations than otherwise in order to maintain the same level of customer service. In most cases, the consignee would prefer an improved service from the shipper who would be compensated by either higher direct shipping costs or increased product price. The problem of transport choice now becomes an issue of balancing increased shipping costs against expected reduction in inventory costs. The purpose of this paper is to propose a computational method of transport selection appropriate to this situation. The method used is an extension of an earlier model and both are described. The main difference between the models is in the estimate of the variability of demand. Four sets of parameters are examined in a test problem and it is found that the models indicate different choices of shipper in some cases. /TRRL/

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