This paper presents a handling cost model for a warehouse that supplie
s one or more stores with a large number of items and examines operati
ng strategies whose objective is to minimize the sum of handling, tran
sportation and inventory costs. Decisions must be made regarding the f
requency of shipments to the store(s) (i.e. the transportation schedul
e) and the specific items and lot sizes included in each shipment. The
paper shows that, conditional on a transportation schedule, lot sizes
for the different items (i.e. their delivery frequency consistent wit
h the transportation schedule) can be determined separately across ite
ms and independently for each store. The paper also examines how these
lot sizes and the best transportation schedule can be identified. The
results, unlike those of other inventory models such as the economic
order quantity (EOQ) model, exhibit peculiarities caused by the nonsmo
oth nature of handling costs. For example, the optimal lot size for in
dividual items sent to a specific store is not a continuous function o
f the value or size of the items. This suggests the need for practical
routing and inventory control procedures that recognize handling expl
icitly.