The transshipment fund mechanism: Coordinating the decentralized multilocation transshipment problem

Abstract

Abstract:The multilocation replenishment and transshipment problem is concerned with several retailers facing random demand for the same item at distinct markets, that may use transshipments to eliminate excess inventory/shortages after demand realization. When the system is decentralized so that each retailer operates to maximize their own profit, there are incentive problems that prevent coordination. These problems arise even with two retailers who may pay each other for transshipped units. We propose a new mechanism based on a transshipment fund, which is the first to coordinate the system, in a fully noncooperative setting, for all instances of two retailers as well as all instances of any number of retailers. Moreover, our mechanism strongly coordinates the system, i.e., achieves coordination as the unique equilibrium. The computation and information requirements of this mechanism are realistic and relatively modest. We also present necessary and sufficient conditions for coordination and prove they are always satisfied with our mechanism. Numerical examples illustrate some of the properties underlying this mechanism for two retailers.

Inventory Sharing Strategy for Disposable Medical Items between Two Hospitals

“…They prove that the conclusion that a transshipment price always exists is wrong by a counterexample, and explore the sufficient and necessary conditions under which the transshipment price does exist. Hanany et al [23] propose a new transshipment coordination mechanism, in which a third-party coordinates the inventory transshipment among multiple independent and noncooperative retailers. The aforementioned research works consider a single transshipment problem under decentralized policy, but we examined how to construct a sharing mechanism when there is an emergent replenishment option.…”

The single and multi‐item transshipment problem with fixed transshipment costs

“…In this case, the effect of the fixed transshipment cost on a desired coordination mechanism and the resulting system profit is not clear. We know that in the absence of fixed transshipment costs, this is already a complex problem that requires a nontrivial coordinating mechanism (Hanany et al, [7]). Accordingly, we believe that fixed transshipment costs would complicate the problem even more.…”

Allocating operating funding in the public sector and the newsvendor problem

“…There is a related literature coming out of the NVP. The interested reader is referred to Slikker et al (2005) and Hanany et al (2010). These papers look at a cooperative game among decentralized newsvendors when there is transshipment.…”