Integrated Inventory Replenishment and Temporal Shipment Consolidation: A Comparison of Quantity-Based and Time-Based Models

In this paper we present two models for joint stock replenishment and shipment consolidation decisions which arise in the context of vendor managed inventory. Stock replenishment from suppliers or shipment to customers each incurs a lump-sum cost to the vendor. We assume the vendor uses the reorder point, lot-size policy to replenish stock and one of two schemes to dispatch shipment: the time-based and quantity-based consolidation schemes. Under the time-based (quantity-based) scheme, a shipment is dispatched periodically (when a certain quantity of outstanding demand is accumulated). The basic finding is that the quantity-based scheme can outperform the time-based counterpart while the reverse never occurs.