Determination of optimal shipping policy by inventory theory

A basic problem faced by organizations importing bulk commodities from abroad is when and how much to order so that the costs incurred will be minimized. Usually the demand is quite stable, yet the shipping time is unpredictable. An inventory model is built to consider importing different commodities from different regions to one destination. A constraint of limited storage space is imposed to meet real conditions. Based on the special structure of the problem, an efficient solution method is devised. To demonstrate the validity of the proposed model and the devised solution method, the coal shipping problem of the Taiwan Power Company (TPC) is formulated and solved. The results are very practical and are very convincing to the top management of TPC.