| Abstract: | The current deregulated transportation environment has fostered wider freight rate differentials based on shipping weight. As a result, grouping inventory items for the purpose of consolidating inbound replenishment orders can be cost-effective. The pressure in some industries for just-in-time delivery of small lots has also created new opportunities for consolidation of orders. The objective of this research is to identify inventory-transport conditions where a consolidation strategy has cost-reduction potential. Logistics cost generated by ordering an ensemble of items consolidated into groups is compared to those generated by two independent, item reorder strategies. Using data from 150 ensembles, the cost-reduction potential of consolidating was correlated with characteristics of the individual inventory items in an ensemble, a dominant group of items in the ensemble, and the ensemble itself. Finally, response functions were derived and used to test the external validity of the results. For this purpose we used 25 randomly selected inventory ensembles obtained from a retail merchandising firm. |
