The inventory routing problem: the value of integration

We consider an inventory routing problem in which a supplier delivers goods to customers over a given planning period. Before the advent of the supply chain management concept, customers usually applied a (s, S) policy for the inventory management. The supplier then, on the basis of the distribution schedule determined by the customers, organized the distribution routes. In an integrated approach, the supplier has access to the inventory levels at the customers and knowledge of their demand process. On the basis of this information the supplier organizes a complete distribution plan, determining the days of visit, quantities to deliver, and distribution routes. This integrated policy is called vendor-managed inventory policy. We solve the optimization problems arising in the traditional and integrated management, and analyze the two approaches, comparing the costs and characteristics of the different solutions.