Impact of Transportation System on Total Cost in a Two-Echelon Dual Channel Supply Chain

Abstract

The advent of e-commerce has prompted many manufacturers to redesign their traditionalchannel structure by engaging in direct sales. In this paper, we present a dual channel inventory modelbased on queuing theory in a manufacturer-retailer supply chain, consisting of a traditional retailchannel and a direct channel which stocks are kept in both upper and lower echelon. The systemreceives stochastic demand from the both channel which each channel has an independent demandarrival rate. A lost-sales model which no backorder is allowed is supposed. The replenishment leadtimes are assumed independent exponential random variables for both warehouse and the retail store.Under the replenishment inventory policy, the inventory position is kept constant at a base-stocklevel. To analyze the chain performance, an objective function included holding, lost sales andtransportation cost is defined. Simulated Annealing is used to find a good solution for inventory levelin each echelon. At the end, we conduct a parametric analysis to study the effect of replenishment ratebetween warehouses on total cost and indicate how to decrease total cost by choosing a suitabletransportation system.