A LOGISTICS COST MODEL FOR PURCHASING TRANSPORTATION TO REPLENISH HIGH DEMAND ITEMS

The analysis of tradeoffs related to transportation purchases is an important element of logistics planning, espeially when companies embrace the principles of just-in-time, quick response logistics, and continuous quality improvement. Yet the traditional approaches to helping managers resolve such tradeoffs require a choice between two unappealing compromises: either making simplifications to obtain mathematically tractable, but error-prone, results or using formulations that are difficult to solve and impractical. This paper presents an improved model that not only extends and refines prior work in this area, but brings the proposed model closer to the work place by embracing the nonlinearity that is inherent in purchasing, inventory, and transportation relationships and by introducing theoretically correct, as well as practical, procedures for solving the resulting problem formulations. The solution procedures can be readily implemented in the spreadsheet environment of microcomputers; indeed, the prototype illustrated in the paper was built that way. Shippers and carriers can use this tool to evaluate alternative service-price offerings linked to daily operations.