Sharing and Lateral Transshipment of Inventory in a Supply Chain with Expensive Low-Demand Items

Abstract

The emergence of carriers that deliver items to geographically dispersed destinations quickly and at a reasonable cost, combined with the low cost of sharing information through networked databases, has opened up new opportunities to better manage inventory. We investigate these benefits in the context of a supply chain in which a manufacturer supplies expensive, low-demand items to vertically integrated or autonomous retailers via one central depot. The manufacturer's lead time is assumed to be due to the geographical distance from the market or a combination of low volumes, high variety, and inflexible production processes. We formulate and solve an appropriate mathematical model based on one-for-one inventory policies in which a replenishment order is placed as soon as the customer withdraws an item. We find that sharing and transshipment of items often, but not always, reduces the overall costs of holding, shipping, and waiting for inventory. Unexpectedly, these cost reductions are sometimes achieved through increasing overall inventory levels in the supply chain. Finally, while sharing of inventory typically benefits all the participants in decentralized supply chains, this is not necessarily the case---sharing can hurt the distributor or individual retailers, regardless of their relative power in the supply chain.Multi-Echelon Systems, Transshipment, Approximation in Inventory Models

Capacitated Production Control with Virtual Lateral Transshipments

“…They include Alfredsson and Verrijdt (1999), Axsäter (1990Axsäter ( , 2003, Cohen et al (1986), Dada (1992), Grahovac and Chakravarty (2001), Lee (1987), Sherbrooke (1992), and Slay (1986). Archibald et al (1997) characterized the optimal policy for a two-location continuous-review problem.…”

Managing transshipments in a multi-retailer system with approximate policies

“…Similarity among Q 0 , Q h , and Q* indicates that use of transshipment and/or the transshipment policy used do not have significant impact on the equilibrium inventory levels of retailers. The slight impact of transshipments on retailers' choice of ordering levels is also indicated by several past studies such as Grahovac and Chakravarty (2001), Zhao et al (2005), Zhang (2005), and Çömez et al (2012a). This conclusion is in fact important in terms of our computational analyses.…”

Optimal transshipments and reassignments under periodic or cyclic holding cost accounting

“…Grahovac and Chakravarty (2001) and Kukreja et al (2001) formulate one-for-one replenishments so the frequency of replenishments and transshipments can be equal. If a transshipment is not available, an order to satisfy the demand is given to the distributor.…”

“…Studies allowing transshipment before a stock-out such as Zhao et al (2006) and Grahovac and Chakravarty (2001) illustrated little need for such transshipments through numerical analyses, while Zhao et al (2008) restricted transshipments only to stock-out cases.…”