Transportation strategies for dynamic lot sizing: single or multiple modes?

The complexity of decision-making for companies buying transportation services has increased due to the presence of more options and pricing schedules for transportation. Many companies make transportation and inventory decisions in an uncoordinated way and select only one transportation mode, missing opportunities for logistics cost savings. The experimental study in this paper is based on a real-world decision problem faced by a Scandinavian company that distributes fast-moving consumer goods and wants to determine its transportation strategy. We propose a novel multi-mode lot-sizing model with dynamic deterministic demand to illustrate the cost impact of accurately modelling piecewise-linear transportation costs and allowing a more flexible usage of transportation modes when planning order replenishments. We compare three transportation strategies with increasing degrees of flexibility: two single mode strategies, where one strategy is more flexible than the other, and a multi-mode strategy. We conclude that managers can significantly reduce costs by increasing the flexibility of mode selection in transportation strategies.

Automated summary

The complexity of decision-making in purchasing transportation services has increased due to the availability of more options and pricing schedules. This study focuses on a real-world decision problem faced by a Scandinavian company and proposes a novel multi-mode lot-sizing model to illustrate the cost impact of accurately modeling transportation costs and allowing flexible usage of transportation modes. The study concludes that increasing the flexibility of mode selection in transportation strategies can significantly reduce costs.