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Pooling in multi-location periodic inventory distribution systems

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  • Tagaras, George

Abstract

Risk pooling through lateral transshipment in inventory distribution systems is an effective means of improving customer service and reducing total system costs. The objective of this paper is to study the performance of an inventory system with one central warehouse and multiple retail outlets, collaborating in the case of imminent shortage by moving inventory between them. The analysis concentrates on the case of three outlets (stocking locations), which captures most of the characteristics and tradeoffs of multi-location systems with complete pooling. In addition to determining order-up-to quantities for the stocking locations, the decision maker must also specify the details of the transshipment policy when one or two locations face shortages. Simulation with a wide choice of model parameters leads to some very interesting and practically useful conclusions, including the following: (a) the benefits of risk pooling through transshipment are substantial and increase with the number of pooled locations; (b) the type of transshipment policy in case of shortages does not affect significantly the system's performance; and (c) it is preferable to form "balanced" pooling groups, consisting of locations that face similar demand.

Suggested Citation

  • Tagaras, George, 1999. "Pooling in multi-location periodic inventory distribution systems," Omega, Elsevier, vol. 27(1), pages 39-59, February.
    • Handle: RePEc:eee:jomega:v:27:y:1999:i:1:p:39-59
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    Cited by:

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    2. Hu, Jason & Watson, Edward & Schneider, Helmut, 2005. "Approximate solutions for multi-location inventory systems with transshipments," International Journal of Production Economics, Elsevier, vol. 97(1), pages 31-43, July.
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    4. Özdemir, Deniz & Yücesan, Enver & Herer, Yale T., 2013. "Multi-location transshipment problem with capacitated production," European Journal of Operational Research, Elsevier, vol. 226(3), pages 425-435.
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    6. Wong, H. & van Houtum, G.J. & Cattrysse, D. & Oudheusden, D. Van, 2006. "Multi-item spare parts systems with lateral transshipments and waiting time constraints," European Journal of Operational Research, Elsevier, vol. 171(3), pages 1071-1093, June.
    7. Refik Güllü & Geert-Jan van Houtum & F. Zeynep Sargut & Nesim Erkip, 2005. "Analysis of a Decentralized Supply Chain Under Partial Cooperation," Manufacturing & Service Operations Management, INFORMS, vol. 7(3), pages 229-247, March.
    8. Tiacci, Lorenzo & Saetta, Stefano, 2011. "A heuristic for balancing the inventory level of different locations through lateral shipments," International Journal of Production Economics, Elsevier, vol. 131(1), pages 87-95, May.
    9. Lee, Young Hae & Jung, Jung Woo & Jeon, Young Sang, 2007. "An effective lateral transshipment policy to improve service level in the supply chain," International Journal of Production Economics, Elsevier, vol. 106(1), pages 115-126, March.
    10. Smirnov, Dina & Gerchak, Yigal, 2016. "Inventory sharing via circular bidirectional chaining," International Journal of Production Economics, Elsevier, vol. 179(C), pages 141-152.
    11. Frank Schneider & Ulrich W. Thonemann & Diego Klabjan, 2018. "Optimization of Battery Charging and Purchasing at Electric Vehicle Battery Swap Stations," Transportation Science, INFORMS, vol. 52(5), pages 1211-1234, October.
    12. Liao, Yi & Shen, Wenjing & Hu, Xinxin & Yang, Shilei, 2014. "Optimal responses to stockouts: Lateral transshipment versus emergency order policies," Omega, Elsevier, vol. 49(C), pages 79-92.
    13. Xu, Kefeng & Evers, Philip T. & Fu, Michael C., 2003. "Estimating customer service in a two-location continuous review inventory model with emergency transshipments," European Journal of Operational Research, Elsevier, vol. 145(3), pages 569-584, March.
    14. Herer, Yale T. & Tzur, Michal & Yucesan, Enver, 2002. "Transshipments: An emerging inventory recourse to achieve supply chain leagility," International Journal of Production Economics, Elsevier, vol. 80(3), pages 201-212, December.
    15. H Wong & G J van Houtum & D Cattrysse & D Van Oudheusden, 2005. "Simple, efficient heuristics for multi-item multi-location spare parts systems with lateral transshipments and waiting time constraints," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(12), pages 1419-1430, December.
    16. Minner, Stefan & Silver, Edward A. & Robb, David J., 2003. "An improved heuristic for deciding on emergency transshipments," European Journal of Operational Research, Elsevier, vol. 148(2), pages 384-400, July.
    17. Monthatipkul, Chumpol & Yenradee, Pisal, 2008. "Inventory/distribution control system in a one-warehouse/multi-retailer supply chain," International Journal of Production Economics, Elsevier, vol. 114(1), pages 119-133, July.
    18. Seidscher, Arkadi & Minner, Stefan, 2013. "A Semi-Markov decision problem for proactive and reactive transshipments between multiple warehouses," European Journal of Operational Research, Elsevier, vol. 230(1), pages 42-52.
    19. Torabi, S.A. & Hassini, E. & Jeihoonian, M., 2015. "Fulfillment source allocation, inventory transshipment, and customer order transfer in e-tailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 79(C), pages 128-144.
    20. Kang, Jae-Hun & Kim, Yeong-Dae, 2012. "Inventory control in a two-level supply chain with risk pooling effect," International Journal of Production Economics, Elsevier, vol. 135(1), pages 116-124.

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