Optimal outbound dispatching policy with pricing

Under a VMI (Vendor Managed Inventory) system, the vendor holds a certain level of control over not only inbound replenishment decisions on stocking but also outbound re-supply decisions. Hence, vendor faces a better opportunity to synchronize the inventory and transportation decision. While shipment consolidation can reduce the transportation cost, however, delivery time to the customer may increase. Thus, inventory and transportation decision must be coordinated considering both customer service requirement and transportation cost. In this study, we have developed a optimal outbound dispatch policy to maximize profits under a quantity based dispatching policy. A mathematical model is developed and an efficient algorithm is provided to obtain the optimal parameters for the proposed policy.