INCORPORATING TRANSPORTATION COSTS INTO JIT LOT SPLITTING DECISIONS FOR COORDINATED SUPPLY CHAINS

Abstract

There is an increased emphasis on making all costs transparent in supply chain management. Transportation costs should be appropriately incorporated into logistics decisions given that transportation costs can be almost 50% of the logistics cost. This study develops a buyer-supplier coordination model to facilitate frequent deliveries in small lot size in manufacturing supply chains. Two transportation cost functions that emulate reality and simultaneously provide a straightforward representation of actual freight rates are identified. Then, they are used to estimate transportation costs and deduce concrete models for truck-load (TL) and less-than-truck-load (LTL). The optimal order quantities of the two deduced models are equal. The solution of the truck-load model has a smaller number of deliveries per order and incurs high inventory cost, while the solution of the less-than-truck-load model has a larger number of deliveries per order and incurs high transportation cost. We propose a heuristic procedure to search the optimal number of deliveries per order in the interval bounded by these two solutions. Experimental results show that the proposed model can guarantee the accuracy and performance of the decision without adding undue complexity and effort to the decision process.