Cycle stock costs transportation

For supply chains, transportation flows enable products or components to change location, thus enabling them to be used at their demand points. The timing of these transportation flows in turn interacts with transport capacity and chain structure to impact supply chain performance. Given this interaction, the total supply chain impact of a choice of transportation flows has to include transport costs, cycle stock costs, safety-stock costs, and in-transit inventory costs. For each possible transport mode, there are... 

From example 9 it is known that the pipeline transport is assumed to induce negligible fixed costs such that a continuous supply of both sites minimizes the cycle stocks. Hence, it is concluded that Si = Si + for = 1,2 such that at both sites only safety stocks... 

The mode of transportation impacts inventory cost in different ways. First, a slower mode creates higher in-transit inventory, increasing the safety stock needed to protect against the uncertainties in supply and demand. It also increases the order lead time, so additional safety stock may be needed to protect against uncertainty in demand during the lead time. Second, larger shipment sizes may create cycle inventory, which happens when the batch shipment size exceeds the current demand. Thus smaller shipments using faster modes can reduce three types of inventories, but the associated transportation costs would increase. 

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