Quantifying the benefits of route reoptimisation under stochastic customer demands

Abstract

Incorporating route reoptimisation in the management of vehicle routing operations under stochastic demands yields benefits such as lower transportation and inventory costs. Because an investment in advanced information systems is indispensable for route reoptimisation, a firm needs to estimate the likely magnitude of these benefits before making an investment decision. This study addresses this information needed by providing a framework to assess the benefits more completely than previous studies. The framework, which is the key contribution of the research, comprises a set of tractable models that together address the costs of both inventory and transportation. By accounting for key determinants of route reoptimisation's benefits, including, for example, the volatility of customer demands, the models are applicable to a broad range of vehicle routing scenarios.

Keywords:

• stochastic vehicle routing
• regression analysis
• route reoptimisation