Lost size model with discrete transportation costs

Abstract

The classical Harris-Wilson inventory model does not explicitly account for the costs incurred in transporting goods from the supplier to the buyer. Either such costs are assumed to be fixed and considered part of the ordering costs or they are assumed to be variable and are included in the item costs. In many situations, however, it is observed that a fixed cost is incurred for a transport mode, (of a given capacity), such as a truck or wagon. The very nature of this type of transport mode requires hiring of an integer number of trucks or wagons. Therefore the transportation cost function becomes a discrete function. In this paper we develop an inventory model with discrete transportation costs, and present an algorithm for the optimal lot size. Finally an example is given to illustrate the methodology