The impact of small lot ordering on traffic congestion in a physical distribution system

In recent years, some managers and researchers have advocated reducing lot sizes by decreasing setup costs, arguing that smaller lot sizes improve quality while reducing inventory levels and associated holding costs. However, smaller lot sizes result in an increased number of shipments which, in turn, exacerbates traffic congestion. This results in longer delivery times and, thereby, higher inventory levels. In this paper we study the relation between lot sizes and traffic congestion by constructing a model with numerous retailers who share a common congested delivery road. Using a numerical example, we illustrate the model's managerial implications with respect to several factors, including lot sizes, traffic congestion, and inventory levels. Our findings suggest that in a physical distribution system, if there are a relatively large number of retailers, no single retailer has an incentive to increase batch sizes because one retailer's effect on reducing traffic congestion will be negligible. If all retailers increase their lotsizes, however, traffic congestion will be reduced and all retailers will experience lower costs.