Replenishment and transportation pricing decisions under two independent carriers with different modes

Abstract

Freight transportation constitutes a substantial cost component in global economics and consumes significant amounts of energy. With the increasing oil prices, scarcity of resources and environmental concerns, efficient operation of transportation activities has become even more important than it was in the past. These raising concerns necessitate the companies which utilize this activity to plan for transportation more carefully and conservatively, and the ones that support it to appraise its value more cautiously. In this thesis, we consider a setting consisting of a retailer, a truck-load carrier and a less-than-truck-load carrier. We model and solve the retailer’s integrated inventory and transportation problem under the presence of two modes of carriers. Characterising the solution for the retailer’s replenishment problem, we then analyze the transportation pricing decisions of the carriers. We show that substantial savings can be achieved by the retailer due to integrating inventory and transportation decisions. We also quantify the savings for the TL carrier and the LTL carrier through carefully determining their transportation price schedules.