Effectiveness evaluation on direct shipping strategy

Abstract : This paper considers the infinite horizon inventory routing problem for one-warehouse multi-retailer distribution systems. We focus on developing an analytic approach for evaluating the effectiveness of direct shipping strategy where each vehicle serves only one retailer in one delivery at its optimal replenishment rate. Explicit formula is obtained in terms of a few of easily measurable parameters. The formula allows the effectiveness of direct shipping strategy to be evaluated quickly using even a hand calculator. We demonstrate that the effectiveness of direct shipping is at least the square root of the smallest utilization ratio of vehicle capacity. This implies that direct shipping is 100% (respectively 94.86%) effective whenever the smallest utilization ratio is 100% (respectively 90%). This insight can help a firm answer questions such as: under what conditions does direct shipping perform well, and why? How well does direct shipping perform in a specific situation.