Specifying ‘fair’service levels in modal choice modelling: Is road transport being favored?

W. Dullaert, E.-H. Aghezzaf, B. Raa, B. Vernimmen

In a stochastic supply link between a supplier and a receiver, the receiver will call upon the supplier who can replenish his inventory at the lowest total cost. This total cost typically contains the order costs, transportation costs and inventory costs. A crucial component of the inventory costs are the costs of safety stock, i.e. the stock held as a buffer against delays in receipt of orders or changes in customer buying patterns. The optimal amount of safety stock can either be derived from the cost of a stockout or from an imposed service level. In the literature there exist several ways to model the service level and the definition used can have an important impact on the derived level of safety stock. In this paper the literature on the inventory-theoretic framework for transport selection is surveyed, with particular emphasis on the use of service level definitions. A real-life case study is used to illustrate the impact of these service level definitions on the total logistics costs.

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