The lateral transhipment problem with a-priori routes, and a lot sizing application

Abstract: We propose exact solution approaches for a lateral transhipment problem which, given a pre-specified sequence of customers, seeks an optimal inventory redistribution plan considering travel costs and profits dependent on inventory levels. Trip-duration and vehicle-capacity constraints are also imposed. The same problem arises in some lot sizing applications, in the presence of setup costs and equipment re-qualifications. We introduce a pure dynamic programming approach and a branch-and-bound framework that combines dynamic programming with Lagrangian relaxation. Computational experiments are conducted to determine the most suitable solution approach for different instances, depending on their size, vehicle capacities and duration constraints. The branch-and-bound approach, in particular, solves problems with up to 50 delivery locations in less than ten seconds on a modern computer.