Managing supply systems with partial information on shipment locations

Abstract

This paper studies a supply system for a retailer who orders a single product from one manufacturer. Orders filled by the manufacturer pass through multiple transportation stages before reaching the retailer. Each stage represents either a physical location or a step in the delivery process. The lead time for a new order depends on the location of shipments against prior orders in transit. Shipments are not allowed to cross over in time. Thus, the movement of each shipment depends on the movements of shipments ahead of it and the resulting congestion. The retailer is able to track shipments as they move through the transportation channel. The retailer adopts an ordering policy that minimises the sum of his one-period holding and shortage costs, using available status information of shipments already in transit. The case where practical constraints prevent the retailer from obtaining a complete status of shipments at all stages in the transportation channel is considered. The methodology developed evaluates the value of partial shipment tracking information, and uses it to determine the optimal placement of a limited number of tracking devices. The methodology can also be used to evaluate the cost–benefit of placing additional tracking devices in the supply system.

Keywords:

• stochastic processes
• Markov chains
• stochastic lead time
• shipment tracking
• value of information

Disclosure statement

No potential conflict of interest was reported by the authors.