Vol. 39, No. 5, September–October 2009, pp. 460–475 issn 0092-2102  eissn 1526-551X  09  3905  0460 inf orms ® doi 10.1287/inte.1090.0450 © 2009 INFORMS An Integrated Outbound Logistics Model for Frito-Lay: Coordinating Aggregate-Level Production and Distribution Decisions Sıla Çetinkaya, Halit Üster Department of Industrial and Systems Engineering, Texas A&M University, College Station, Texas 77843 {sila@tamu.edu, uster@tamu.edu} Gopalakrishnan Easwaran Department of Engineering, School of Science, Engineering and Technology, St. Mary’s University, San Antonio, Texas 78228, geaswaran@stmarytx.edu Burcu Baris Keskin Department of Information Systems, Statistics, and Management Science, University of Alabama, Tuscaloosa, Alabama 35487, bkeskin@cba.ua.edu In this paper, we describe research to improve Frito-Lay’s outbound supply chain activities by simultaneously optimizing its inventory and transportation decisions. Motivated by Frito-Lay’s practice, we first develop a mixed-integer programming formulation from which we develop a large-scale, integrated multiproduct inven- tory lot-sizing and vehicle-routing model with explicit (1) inventory holding costs, truck loading and dispatch costs, and mileage costs; (2) production, storage, and truck capacity limitations; and (3) direct (plant-to-store) and interplant (plant-to-plant) delivery considerations. Second, we present an iterative solution approach in which we decompose the problem into inventory and routing components. The results demonstrate the impact of direct deliveries on distribution costs and show that direct deliveries and efficient inventory and routing decisions can provide significant savings opportunities over two benchmark models, one of which represents the existing Frito-Lay system. We implemented our models using an application that allows strategy evaluation, analysis of output files, and technology transfer. This application was particularly useful in evaluating potential direct-delivery locations and inventory reductions throughout the supply chain. Key words : coordinated logistics; integrated inventory; transportation decisions; vendor-managed inventory and delivery; inventory lot sizing; vehicle routing. History : Published online in Articles in Advance June 10, 2009. F rito-Lay North America (FLNA) operates a large and complex supply chain. The company, a divi- sion of PepsiCo, employs more than 40,000 people and produces a wide variety of snack foods. It owns a private fleet, which consists of more than 1,400 over-the-road (OTR) trucks and 20,000 route-delivery (RD) trucks of various capacities, for the outbound transport of these products to many delivery loca- tions; these include distribution centers (DCs), bins, and customers (stores). Its overall distribution oper- ation also includes interplant (plant-to-plant) ship- ments because each plant does not produce each product group. FLNA’s offerings comprise 16 differ- ent groups of produced and nonproduced items, with thousands of stock-keeping units (SKUs). It operates 33 production facilities, 192 DCs, and 1,535 bins in the United States as well as additional plants, DCs, and bins in Canada. Consequently, FLNA faces complex outbound logistics planning issues. FLNA participates in a vendor-managed inven- tory and delivery (VMI/D) program. Under a typical VMI/D program, a vendor is empowered to con- trol its resupply timing and quantity at downstream locations (Çetinkaya and Lee 2000). Because effec- tively utilizing transportation resources is imperative, a vendor is more likely to dispatch full-vehicle out- bound loads to achieve economies of scale. Using this program also makes coordinating inventory and outbound transportation decisions easier. We devel- oped a model to allow simultaneous optimization of 460