Mathematical modeling of floating stock policy in FMCG supply chains

The floating stock distribution concept exploits inter-modal transport to deploy inventories in a supply chain in advance of retailer demand. It is appropriate in case of batch production and containerized transport of standard product mixes. In this way response times are reduced and storage costs can be reduced as well by having products in the transport-pipeline. This concept was earlier analysed using a simulation approach and showed to be efficient under simplifying assumptions for the demand distribution. In this paper we present two mathematical models to analyse this policy while backlogging is allowed. The first one tries to optimize the advanced shipping time of containers to inter-modal terminal, and the second one optimizes the total number of containers in pipeline and terminal. In fact, in both policies containers are shipped to a terminal before the demand is realized in order to benefit from less storage cost at the terminal by utilizing the shipping time and also free storage cost period at inter-modal terminals. A comparison is made with the simulation outcomes of applying previously developed strategies which shows that this concept has advantages in inventories over other strategies.