Abstract
A firm's logistics cost, including shipping and inventory-carrying, is a substantial percentage of its sales. Nevertheless, typical inventory-control methods ignore or insufficiently represent the shipping cost. This paper describes a recursive algorithm that determines the reorder cycle-time that minimizes total logistics cost. It allows for a realistic accounting of shipping cost, which is modelled here as a function of shipping distance and weight. The algorithm uses a relaxation procedure to identify a suitable initial approximation to the optimal order cycle-time and then, through a series of recursive steps, moves to the optimal result. We demonstrate the algorithm with a single item, with a group of items that share a common order cycle, and with multi-items when item demands are random variables. Experience with this algorithm indicates that it converges to the optimal result in a very few steps.
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Buffa, F., Munn, J. A Recursive Algorithm for Order Cycle-time that Minimizes Logistics Cost. J Oper Res Soc 40, 367–377 (1989). https://doi.org/10.1057/jors.1989.55
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DOI: https://doi.org/10.1057/jors.1989.55