DISTRIBUTION STRATEGIES THAT MINIMIZE TRANSPORTATION AND INVENTORY COSTS

This paper develops an analytic method for minimizing the cost of distributing freight by truck from one supplier to many customers. Formulas are derived for transportation and inventory costs, and the optimal cost trade-off is determined analytically and graphically. Two distribution strategies are analyzed and compared: direct shipping (i.e., shipping separate loads to each customer) and peddling (i.e., dispatching trucks that deliver items to more than one customer per load). The cost trade-off in each strategy depends on shipment size. Results indicate that, for direct shipping, the optimal shipment size is given by the economic order quantity (EOQ) model, while for peddling, the optimal shipment size is a full truck. The peddling cost trade-off also depends on the number of customers visited on a peddling route. The analytic approach taken here focuses on the spatial density of customers and the distribution of customer demand rather than the demands of specific customers in precise locations. This approach simplifies the analysis of distribution problems by eliminating the need to specify a detailed network and corresponding flows. It also results in formulas that allow cost trade-offs to be understood clearly. These formulas are useful for practical applications and only require estimates of a few easily measurable parameters. Mathematical programming techniques are not required. The formulas also facilitate sensitivity analyses that indicate how parameter value changes affect costs and operating strategies. (Author)

• Corporate Authors:

  General Motors Corporation

  Research and Development Center, 30500 Mound Road
  Warren, MI  United States  48090
• Authors:
  • Burns, L D
  • Hall, R W
  • Blumenfeld, D E
  • Daganzo, C F
• Publication Date: 1983-7

Media Info

• Features: Appendices; Figures; References;
• Pagination: 31 p.

Subject/Index Terms

• TRT Terms: Alternatives analysis; Costs; Economics; Freight traffic; Freight transportation; Minimization; Physical distribution; Routing; Savings; Scheduling; Trucking
• Old TRIS Terms: Minima
• Subject Areas: Economics; Finance; Freight Transportation; Highways; Motor Carriers; Planning and Forecasting; I72: Traffic and Transport Planning;

Filing Info

• Accession Number: 00384757
• Record Type: Publication
• Report/Paper Numbers: GMR-4419
• Files: TRIS, ATRI
• Created Date: May 30 1984 12:00AM