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Scenario Tree-Based Heuristics for Stochastic Inventory-Routing Problems

Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology, N-7491 Trondheim, Norway
Molde University College, N-6402 Molde, Norway
Canada Research Chair in Distribution Management, HEC Montréal, Montréal, Quebec H3T 2A7, Canada
lars.m.hvattum{at}iot.ntnu.no
arne.lokketangen{at}himolde.no
gilbert{at}crt.umontreal.ca

In vendor-managed inventory replenishment, the vendor decides when to make deliveries to customers, how much to deliver, and how to combine shipments using the available vehicles. This gives rise to the inventory-routing problem in which the goal is to coordinate inventory replenishment and transportation to minimize costs. The problem tackled in this paper is the stochastic inventory-routing problem, where stochastic demands are specified through general discrete distributions. The problem is formulated as a discounted infinite-horizon Markov decision problem. Heuristics based on finite scenario trees are developed. Computational results confirm the efficiency of these heuristics.

Key words: inventory routing; stochastic; heuristic; scenario
History: received August 2007; accepted May 2008.