Minimizing Costs of Oil and Gas Distribution: a Solution Methodology for the Inventory Routing Problem in Oil and Gas Distribution

We study the distribution of product, in this case gas, to commercial and residential customers by truck. These customers receive deliveries in a Vendor Managed Inventory (VMI) contract, which gives companies the flexibility to determine when and what volume to deliver, and what routes to choose. The decision problem that is associated with distributing a product to a large set of VMI customers is called the Inventory Routing Problem (IRP). In this book, we develop an algorithm for practical use that solves this problem and also incorporates a method that balances delivery volumes on a longer term, in order to mitigate the effects of large seasonal peaks in product demand. Our algorithm effectively uses the flexibility provided by VMI, as it improves efficiency and lowers costs by decreasing the number of travelled kilometers required to deliver the product.