Effective Inventory Control through Transportation Problem

Those who deal with inventory or supply chain management must be aware about the transportation problem and need of minimizing the transportation cost, which is the essential part of inventory control system. And those who deal with only inventory management at one location or may be at two will not need this process but its always good to learn. I will try to explain the concept of transportation problem and benefits of its analysis, which will further compliment this article.

As the word suggest itself “Transportation Problem” is an issue of optimal transportation and effective allocation of resources and the major focus is to solve “Transportation Problem” with mathematical calculations and a well defined procedure which can help in reducing transportation cost. I would try to explain the overview with an example.  For detailed understanding and explanation you can check out for Linear programming notes.

The illustration is explained with the Matrix diagram having two dimensions, rows and columns which represent the commodity demand and the supply available at particular location that have different costs of transporting the goods to a particular location.

Note: Letter M represents Huge quantity.

We will not discuss the mathematical formula to do it rather we will discuss the benefits of doing it, who should do it, objective of doing it from the point of view of inventory control.

Our objective is to increase the margins by reducing the cost and there is one way which we can opt and that is, saving on the transport, which will affect in resulting more average profit per item.

Any company who is having more than 2 holding inventory at different locations should opt this method to reduce the transportation cost, companies having less than 3 or 1 outlet cannot make use of this method as the scope is very limited and so are the choices. Ecommerce companies and large item distributors like Amazon.com or HP can be the perfect example of its implementation.

There are few benefits of doing this that can be of noticeable degree.

1. Reducing the cost of transport for each item which results in lesser average cost of item towards the company, and increases profit margin of the company.

2. Availability of stock in most of the locations with few or small quantity to meet the future small demands and make items available to customers quickly.

3. No need to frequently move inventory for managing stocks at all locations to satisfy small demands of customers, as this can be automatically done while performing the process.

1. Complex solution to implement and needs lot of work before implementing the solution as you need to find out the cost of inventory movement for each item which involves lot of cost and time.

2. If not performed correctly, it can result in increasing cost, insufficient inventory supply and unnecessary inventory movement.

3. Consume expert resources to handle this complex transport network in order to minimize cost which results in loosing of some work which needs to be carried out by experts.

1. Very difficult to perform with the help of software implementation and that too, on a network level. All stores need to be connected. Stand alone software cannot help in implementing the process.

2. Difficult to convince the management to adopt this strategy as it is difficult to show the noticeable effects with a few items. It can be helpful and shows its effect when performed on large item numbers.

3. Involves high risk of mismanaging the transport activity and shift in inventory stocks and calculations.

This article will be useful once you understand the concept of transportation problem, although I will be delighted to have your insights.

I would strongly suggest that for those who are not having more inventory locations, please do not try to adopt this strategy as it may hurt your business. If you like, you can help your business by implementing small Inventory software. You can download one from here.