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Copyright@ 1992 Pergamon Press plc

Mathl. Comput. Modelling Vol. 16, No. 3, pp. 81-90, 1992

Printed in Great Britain. All rights reserved

A GOAL PROGRAMMING
MODEL
FOR AGGREGATE
INVENTORY
AND
DISTRIBUTION
PLANNING
D.

C.

BRAUER

Jersey Central Power and Light

Madison Avenue and Punchbowl Roads
Morristown, New Jersey 07960, U.S.A.
G.

NAADIMUTHU

Fairleigh Dickinson University

Department of Information Systems and Sciences
Rutherford, New Jersey 07070, U.S.A.

(Received

May 1991)

Abstract-A
mixed integer linear programnung formulation for inventory and distribution planning of a central distribution center serving multiple retail outlets, is considered. This problem is
transformed into a goal programming model based on preemptive ordering of three goals-aggregate
inventory turnover, service level of filled demand and total system cost. A numerical example is
solved using the linear programmrng software package LINDO on a VAX 11-750 computer system to
illustrate the application of the approach. Solutions for all permutations of the prioritized goals are
compared. Tradeoffs between the goals are considered for analyzing compromise solutions.
NOMENCLATURE
n

number of customer or retail

outlets

number of products
number of periods in planning

horizon
ck
Ykt

unit cost for product k

decision variable for number of
units of product k to order in

ut
8

decision variable for amount of

overtime for trucks in period t
decision variable for amount of
undertime for trucks in period t
fraction of regular time hours

Djkt

available for overtime

total hours available for trucks in
period t
demand for period k by customer j

in period t
maximum amount of product that

Ht

Zkt

period t for central depot

binary decision variable for order

Skt

period of product k
fixed order cost for product k in

hk

period t
holding cost for one unit of product

Pk

inventory turnover rate

maximum allowed periods of

k
backlog cost for one unit of product

vk

supply for customers of product k

shipping volume for one unit of

Ikt

k
decision variable for inventory

Sjk

position of product k in period t

per unit distribution cost to
customer/retailer j for product k

xjkt

from central depot

decision variable or number of units
of product k to ship to customer j

can be ordered in period

B

product k
Lkt

Pjt

capacity of delivery truck

minimum service level of filled total
demand for product k in period t
(truck) hours for one delivery to
customer j including loading and
unloading time
number of trips (truck loads) for
customer j in period

in period t
overtime hourly cost rate for truck
delivery in period

t
Typeset by A,@-QX
81

82

D.C.

BRAUER, G. NAADIMUTHU

INTRODUCTION
The application

of linear programming

is not new. Typically,

to purchase, produce,
well as unit production

models to inventory

and distribution

planning

decisions

the objective function is formulated in terms of the amount of product

and/or ship at the minimum cost. Inventory holding and back-log,
as
and shipping costs are usually part of the objective function expression.

Constraints
typically consider demand, supply, service level, and stocking related characteristics.
In practice, firms may be operating under competing criteria, that is, management
by objectives
in which the primary objective may not necessarily be only minimum cost. It may not be feasible
to satisfy all objectives,
either completely or partially.
A typical set of competing
objectives
in inventory management
is service level and inventory turnover rate.
Rather than plan the
production
and distribution
be formulated
in the linear

in terms of one absolute objective,

several objectives
or goals can
programming
(LP) model and satisfied according to a preselected

ordering. This approach requires the original LP model to not only be reformulated
in terms of
the goals, but also an ordering of the various goals to be made subject to disagreement
through
subjective assignment.
If the number of goals are not large it is possible to enumerate all ordering
This may result in the elimination
or
combinations
and assess the variations due to ordering.
dismissal of some controversy associated with a particular ordering.
The purpose of this paper is to first present a general mixed integer linear programming
model formulated
After
customers.

for inventory and distribution

planning from a central warehouse to multiple
the model is presented,
a numerical example is solved based on prescribed

conditions.
Next, the problem is reformulated
in terms of a goal programming
model with three
specific goals. All combinations
of the goal priorities are then solved for and compared.
These
results

are discussed

and also compared

to the solution

of the linear programming

model.

BACKGROUND
Prior publications

have been the subject

of goal programming

model formulations

and solutions

of production
planning and materials management
type problems.
The majority
of
considers linear model formulation
with a set of preemptive goals arranged according
assumed rank of desirability.
Goals are usually set in terms of cost or profit levels, along
scarce resources. Typically, production workload, workcenter capacity, manpower, and
levels are formulated as part of the models.
Meij [l] presents a separable programming
(SEP) approach for aggregate production
where the cost functions
cessive

formulation

are nonlinear;

or solution

effort.

SEP

provides

Although

for an improved

production

planning

methodology
is generally

this work
to some
with any
inventory
planning

without
recognized

exto

consist of master scheduling, material requirements

planning, and capacity requirements
planning, Fisk [2] suggests that the planning process can be improved by properly planning output
levels. He presented a goal programming model for determining an output plan that best satisfies
a series of goals specified by management.
Application of the goal programming
resentative
problem indicated that under-utilization
of facilities can frequently
reasonable

cost through

for aggregate production

The model also contains

proper planning.

Jaaskelainen

[3] presents

model to a repbe avoided at a

a goal programming

problem

planning that considers production levels, employment,

and inventories.
subcontracting
and overtime options as a means of satisfying production

requirements.
The goals are formulated in terms of achieving an ordered sequence of priorities.
Green el al. [4] have conducted a multi-criteria
warehouse location analysis for physical distribution.
The problem is formulated
as an integer goal programming
model using a branch
and bound heuristic to produce an optimal solution. Lee et al. [5] h ave applied multiple criteria
goal programming
model to the problem of where to locate fixed facilities within a given system.
Variables such as managerial assessment of risk, production cost and shipment size, availability
and cost of labor, pollution control and public acceptance,
and quality of life, are quantified prior
to incorporation
into the model. Mohanty and Chandran
[6] p resent a generalized preemptive
goal programming
model for production planning for a multi-product
portfolio over a planning
horizon. Production level, storage space, budget, capacity, lost sales, customer service, overtime,
and inventory level are considered. They show the effects on an example problem when the order
of priority is altered to point out the sensitivity and importance
of goal ordering.

Goal

programming model

83

OGrady and Menon [7] present a modeling approach for production

planning
decisions for
automated
manufacture,
such as in flexible manufacturing
systems. The planning framework is
based on concepts drawn from zero-one programming,
Boolean relationships
and the weighted
attainment
function of goal programming
in order to obtain the best compromise solution in relation to a set of conflicting performance
goals. Wuwongse and Mukyangkoon
[8] have proposed an
for solving production
planning probinteractive
goal programming
(IGP) on a microcomputer
lems. They developed the IGP by introducing
a new concept of goal programming
and modifying
the direct search method of Hooke and Jeeves. A numerical example illustrating
the approach
is presented and the computational
experience discussed. Tabucanon
and Mukyangkoon
[9] developed a microcomputer
system for solving a production
planning goal programming
problem
based on pairwise comparisons
of objective function values. The model is formulated
in terms of
production,
inventory,
and workforce levels, with goals consisting of total cost, manpower,
and
model for multiproduction.
Kendall and Schniederjans
[lo] p resent a linear goal programming
product production
planning with interval resource parameters.
Formulation
and computational
comparisons
are made between interval linear programming
and linear goal programming
approaches. Their results suggest that a linear goal programming
approach reduces the size of the
pertaining
to unit
problem and computational
(CPU) t ime, while providing added information
production
and resource allocation.
Other papers have presented alternative
problem formulations
including nonlinear expressions,
stochastic conditions,
and nonpreemptive
goal programming
models. See [ll] for an overview of
goal programming
approaches and solution techniques.
A survey of methodological
and applied
papers on generalized
goal programming
is provided by Romero [12]. Also, Lin [13] provides a
reference list of goal programming
applications
to multiple objective decision making. Since the
objective
of goal programming
models is, in some sense, to minimize the deviations
from the
goals, an absolute measure of each deviation is essential so that relative weightings can be set
as desired. In this regard, a subtle bias in goal weighting is explained and a normal correction
method suggested by Widhelm [14]. Also, three linear programming
formulations
satisficing
(closest to satisfying)
the goal constraints
are briefly discussed and compared by him. Lee and
Lee [15] develop and demonstrate
interactive
integer goal programming
solution methods for multiple objective problems. The interactive
approach allows the decision maker to interact with the
model via a computer terminal to derive the solution and perform sensitivity
analysis. Markland
and Vichery [16] h ave developed an efficient solution strategy for solving large-scale integer goal
programming
problems using commercial integer programming
software. Computational
experience with the procedure is discussed. Deckro and Hebert [17] discuss existing approaches to the
model. The classic Holt, Modigliani,
Muth and Simon (HMMS) LDR model is examined
and
compared with a preemptive
quadratic goal programming
problem. They conclude that practical
application
issues using goal programming
are the use of linear, higher order powers, and preemption preference.
Raker et al. [18] p resent a stochastic goal programming
model with a lost
sales goal, production
level goals, product inspection
related goals, and production
line capacity
goals. The model satisfies the goals in a preemptive manner using sequential linear programming
for the goals and separable
programming
for the nonlinear
relationships.
Lawrence and Burbright [19] formulate a multiple objective linear programming
model to maximize sales revenue,
minimize total production
and transportation
costs, and maximize production
levels. An example problem is solved using a FORTRAN
program that determined
the extreme points. Locket
and Muhleman
[20] present a goal programming
model for production
scheduling that smooths
workload while still considering
marketing
requirements.
The objective function is a weighting
of deviations
from the goals and solved by considering
all the decision variables simultaneously.
This approach varies from the more common method using preemptive
goals.
MATHEMATICAL

MODEL

A general linear programming

formulation
is first presented and explained in terms of the scope
of the physical inventory and distribution
system previously described. This formulation
is then
transformed
into a linear goal programming
model based on a preemptive
ordering of goals. The
linear programming
model is as follows:

D.C. BRAUER, G. NAADIMUTHU

84

Minimize

CkYkt

k=l

Zktskt)

w,+,+I&-l)

t=l

Tk(Ik; + I,-r*_J
2

~!?jkxjkt

atot]

(1)

j=l

subject to:
Ikt

Ik,t-1

ykt

2Djkt;

k,

(2)

j=l
Ikt =

Itt

Ykt

Vk,

&t;

Vk,

Mzkt;

(3)

(4)

CkDjkt

j=l k=l

t=l

1/TCEl

>B

c:zl

ck((lk+o

Ikt;t-1

1&)/2

I,,>

(5)

n
c

xjkt

Vk,

Ykt;

(6)

j=l
t+p*-1
xjkt

Djkt;

V j,

k,

(7)

(8)
t=1

t=1

l-I~/~Djkt

Vk,

Lkt;

(9)

j=l

j=1

rjqjt-Hjt=Ot-Ut;

c,;
m

Qjt

Vt

(IO)

Vkxjkt
Vi

(11)

k=l

o,-u,<eHt;

vt

(12)

zjkt, Ykt, I&, Iit > 0 and integer;

Zkt = 6, I;
01, ut,

qjt

Vk,
0;

Vj,

Vj,

k, t

(13)
(14)

(15)

The objective function of the model seeks to minimize the total system variable costs associated
with ordering, stocking, and distribution of product from the central depot to ultimate retail
outlets. This includes the aggregate unit and fixed cost of ordering by the central depot from
suppliers, as well as the total system costs of the average inventory holding and backlog positions
over the planning horizon. The distribution costs are those pertaining to the specific products and
any overtime allocated to the various retail customers. Expression (2) is the inventory position,
and product on order. Since backlogging of product is permitted, a negative inventory level can
occur. Expression (3) is added to define a backlog as a separate nonnegative decision variable.
In order to force the ordering cost to become active in the objective function as a fixed cost,
Expression (4) is included, where M represents the maximum amount of product that can be
ordered to force the order cost into solution when product is ordered. Expression (5) defines
the inventory turnover rate over the planning horizon based on projected demand and average
inventory levels. The total amount of product able to ship to customers in a period is limited by
Expression (6). This aggregate amount must not exceed the prior periods inventory level and

Goal programming model

85

on order amount.
Expression
(7) simply limits the number of periods of demand that can be
shipped to each customer. The total demand over the planning horizon must be satisfied for each
customer and product.
Expression
(8) ensures that the demand is attained
through customer
deliveries. The minimum aggregate service level is defined in Expression (9), where service level
is the proportion
of periodic demand filled as measured by the volume of backlog. Expressions
(lo), (11) and (12) define th e re q uired truckloads and resources for distributing
product to each
customer.
These expressions
allow a level of overtime and assume a dedicated
truck for each
customer with the potential
to utilize undertime
for customer deliveries.
Expressions
(13), (14)
and (15) are the restrictions
of the various decision variables.
The above linear programming
model can be transformed
into a goal programming
formulation
given a desired approach, such as preemptive,
along with identifying
those goals to attain. This
paper will strictly examine a preemptive
approach in which an assumed ordering of goals are
targeted for achievement.
There are three major elements comprising the model presented that would be likely candidates
as goals. One obvious goal is the total inventory and distribution
system cost already given as
the objective function.
The other two are aggregate inventory turnover and the service level of
filled demand.
Actual ordering of these three particular
goals would depend upon individual
or
general business preference.
What we ultimately
wish to examine in this paper are how a general
linear programming
solution compares to goal programming
solutions,
and to what degree the
ordering of goals alter solutions.
Let us define Pr as the level of priority for goal i where
Pl > P2 > P3 > . . . > P,
with PI of the highest priority being satisfied in a sequential manner.
Given the three potential
goals previously mentioned,
a total combination
of six ordering of the following priority will be
assumed to demonstrate
a goal programming
formulation.
The priority selections are:
PI = aggregate inventory
turnover
Pz = service level of filled demand
P3 = total system cost.
The following slack and surplus variables are defined with respect to each of the three goals:
d, = underachievement
of aggregate inventory turnover
d;f = overachievement
of aggregate inventory turnover
d& = underachievement
of service level for product k in period t
d&, = overachievement
of service level for product k in period t
d, = underachievement
of total system cost
d$ = overachievement
of total system cost.
The goal programming
model can now be stated as follows:
Pld,

Minimize

+ P2 F

k=l

d;kt

P& .

This is subject to the same constraints

previously defined in the linear programming
the following modifications
to expressions (l), (5) and (8).
CkDjkt
j=l

k=l

t=l

1/TC;=~

l-

c:t

Eyf$j

k((k+o

kl

~bkykt

+ zktskt)

k=lt=l

+ 2
j=l

gjkxjkt

+ atOt]

&>/2

+ d& - d&, = Lkt;

+d;-d+B,
+

+ di

w,+,+I,;,_,>+
2

- d$ = A

(16)

t=1

model with

(17)

I,,>

Vk,

Tk(lii

(18)

+ I;,-,)

(19)

86

D.C. BRAUER, G. NAADIMUTHU

NUMERICAL

EXAMPLE

An example problem was structured,

formulated
and solved using the mixed integer linear
programming
model presented in the previous section.
A planning
horizon consisting
of four
quarters in which four products are distributed
from a central depot to three customers
was
analyzed.
Each of the four products stocked at the central depot had an initial inventory
position and the equivalent
of three delivery trucks to distribute
product to customers.
Levels for
inventory turnover and service fill rates were established for the respective quarters.
Appendix A
summarizes
the data used for the example problem. The integer linear programming
formulation
resulted in a problem containing
132 decision variables and 97 constraints.
Of the 132 decision
variables, 96 were integer, 16 were binary (0, l), and 20 were continuous.
The problem was solved
using the mathematical
programming
software package LINDO on a VAX computer,
requiring
339 iterations
and 7.32 CPU seconds.
The solution to the example problem resulted in a total cost of $21.85M over the four quarter
period.
Orders were required to be placed from the central depot in every quarter for each
product.
Deliveries to all three customers were also required each quarter without overtime.
Both inventory
turnover and service level rates were attained each quarter.
In fact, only in the
fourth quarter did the service level rate go below 100% to a level of 85%, which was the minimum
level. This is attributed
to the model formulation
requiring no ending inventory
level and thus
forcing the backlog position which eliminates
both procurement
and carrying costs. Solution
details are shown in Appendix
B with respect to quarterly
inventory
position and service fill
rates, as well as the individual
cost elements of the solution.
Following total unit costs, the next
highest cost elements in solution were distribution,
holding, shortage, and ordering.
The results show that the minimum cost solution is attained within the major operating
constraints
of inventory
turnover
and service fill rate.
However, the level of service fill rate is
somewhat sacrificed in the last quarter from a consistent
100% basis. This operating philosophy
may not be acceptable
and is subject to revision. In this situation there are actually then three
attributes
to balance-total
cost, service fill rate, and inventory turnover.
Therefore, either additional constrains
have to be incorporated
into the formulation
or perhaps a goal programming
approach should be employed.
The same data was used to solve several goal programming
problems as presented
in the
previous section. Six permutations
of the three goals identified in all possible orders of priority
were formulated
and solved. The target level for total system cost was based on the value of the
objective function obtained from the integer programming
solution. Table 1 displays the various
ordering solved for to minimize the underachievement
of inventory
turnover
and service level,
and overachievement
of total cost.
Feasible solutions to all the permutations
were obtained for each level of priority. As is turned
out, inventory
turnover at least equal to or greater than five times, was attained
in each permutation
regardless of the priority. The most significant variation of goal achievement
was that
of service level and total cost. In the first permutation,
service level for product 2 in periods
3 and 4 was below the 85% goal with a result of 69.6% and 13.2% respectively.
At the same
time, total cost increased by $686. All other products in the four periods had service levels between 90% and 100%. The second permutation
resulted in a solution very similar to that of the
problem with the original objective function.
Service level was minimally sacrificed for products
1, 3, and 4, all in the fourth quarter by less than one percentage
point below the 85% target
level. The third permutation,
giving first priority to service level and second priority to inventory
turnover resulted in an increased total cost of $2872. All products attained a 100% service level
throughout
each of the four quarters while satisfying inventory turnover. The fourth permutation
is similar to the third, except for interchanging
the orders of priority of total cost and inventory
turnover.
In this case, total cost increased by $1438 while attaining
the same level of service as
the third permutation.
The fifth and sixth permutations
yielded similar results with respect to
service level underachievement.
In each instance, less than a 3% underachievement
resulted in
two products,
both in the fourth quarter.
All other goals were achieved without any sacrifice.
Appendix
C summarizes
the results for each of the six permutations.

Goal programnu

87

ng model

The results associated with the goal programming

approach indicate that a given priority or
emphasis on one model attribute
may not necessarily
cause a significant
sacrifice in another
attribute.
Such was the case in this example between total cost and service level. A more
fundamental
problem in using this approach may be a determination
of preemptive
ordering and
the degree to which any under or overachievement
is acceptable.
On the other hand, the original
integer programming
problem with a single objective function may not yield a feasible solution
due to constraint
limitations.
CONCLUSION
The problem presented in this paper is a comprehensive
inventory and distribution
model for
This model lends itself to application
a single distribution
center serving multiple customers.
through use of linear mixed-integer
programming
techniques available on standard mathematical
programming
software such as LINDO [21,22].
As demonstrated,
the original model was easily transformed
into a preemptive
goal programming formulation.
This was shown to be a logical extension given the nature of inventory problems.
The basic parameters
of the above goal programming
formulation,
consisting
of inventory
turnover,
service level, and total system cost, represent deviational
variables that measure the
extent to which the goals are achieved.
In effect, the goals provide for a bounded level of uncertainty subject to their priority ordering defined by the slack and surplus variables associated
with the basic parameters.
Goal programming
solutions of these basic parameters
were developed and compared for all
permutations
of priority. Results indicate the degree to which trade-offs may be made between
these attributes.
Such analysis is worthwhile when competing objectives are present and there is
some question as to importance
and resulting level of sacrifice.
Table 1. Permutations of goals

Priority
Permutation
1

inventory turnover

service level

total cost

inventory turnover

total cost

service level

service level

inventory turnover

total cost

service level

total cost

inventory turnover

total cost

inventory turnover

service level

total cost

service level

inventory turnover

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of Production
Research
(GB)
18 (2), 233-243 (1980).
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Sciences
10 (4), 593-603 (1979).
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71 (2) 14-29 (1969).
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of
Physical
Distribution
t3 Materials
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11 (1) (1981).
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& Operations
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(uI<) 8 (l), 1-8 (1981).
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ment, Eng. Costs and Prod. EC., pp. 157-164, (1984).
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Applications
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BRAUER, G. NAADIMUTHU

D.C.

88
9. M.T.
ning,

Tabucanon

hi. J.

and S. Mukyangkoon,

Prod.

Res.

Multi-objective

23 (5), 1001-1023

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20, 83-91

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plan-

production

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(1985).

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TokywKyoto,

Proceed-

Japan, (1978).

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Rakes,

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Integes

and Qrardrahc

APPENDIX
Summary

of Data for

Item Demand

De-d

(units)

Programming

with LINDO,

(1987).

A
the Numerical

Example

and Initial Inventory Position

Q2

Q3

Q4

Inventory

Item 1
Customer

15000

11000

19000

10000

Customer

12000

8000

10000

14000

Customer

22000

13000

17000

9000

49000

32000

46000

33000

10000

Item 2
Customer

5000

8000

8000

10000

Customer

10000

10000

14000

14000

Customer

8000

10000

12000

14000

23000

28000

34000

38000

5000

Item 3
Customer

700

500

1000

800

Customer

400

300

500

400

Customer

200

600

900

700

1300

1400

2400

1900

500

Item 4
Customer

21000

18000

14000

10000

Customer

18000

18000

15000

9000

Customer

15000

13000

10000

7000

49000

39000

26000

15000

3rd Edition,

The

Goal progmmming
Product

Holding

Cost

Shortage

Cost

Overtime

Rate

Cost Elements

12

20

15

10

2ocl

200

200

200

($/unit)
Is/hour)

Criteria

89

and Characteristics

($/unit)

Other

model

and Conditions

Inventory

Turnover

Overtime

Rate

Rate

Delivery

Truck

Hours (hrs/qtr)

Delivery

Time

&s/customer)

1
1

25%
1800

Customer

Customer

Customer

APPENDIX
Summary

of Results for
Inventory

Inventory

the Numerical

Levels

Service

Example

(units)

Rate

Ql

Q2

Q3

Q4

100%

100%

100%

85%

100%

100%

85%

85%

100%

100%

100%

85%

100%

100%

100%

85%

Product

D.C.

90

BRAUER, G. NAADIMUTHU
Total Cost Breakdown

unit costs
Product 1

83,626,250

Product 2

11,230,600

Product 3

466,125

Product 4

5,964,006
$21.286.375

Orderinn Costs

$32.096

Holding Costs

$199,665

Shortage Costs

$98,438

Distribution Costs

$244,540

Overtime Costs

so
%21,851,418

APPENDIX
Summary

Permutation

of Goal Programming

Result *

Results

Service Level

Total Cost Increase

Product 2, Period 3: 69.56%
Product 2, Period 4: 13.16%

4
5

1 t 1438
1 80

1 All 160%
Product 1, Period 4: 84.82%

I
6

to

Product 4, Period 4: 84.99%

Product 1, Period 4: 82.75%
Product 3 Period 4: 84.99%
All other 2 96 %

*Inventory turnover attained overachievement in every permutation.