On the benefits of operational flexibility in a distribution network with transshipment
AbstractWe consider a centralized distribution network with multiple retailers who receive replenishment inventory to satisfy customer demand of the local markets. The operational flexibility of the network is defined as the opportunity that one retailer's excess inventory can be transferred to satisfy other retailers' unmet customer demand due to stock-outs. A general modeling framework is developed to optimize retailers' order quantities under any possible flexibility level of a stylized two-stage distribution network. We apply the framework to formulate and solve the transshipment problem of a distribution network with three retailers. Six typical flexibility levels are investigated to make the comparison study on the firm's profit performance under three ordering quantity policies: average demand, newsvendor order quantity, and optimal order quantity. We find that the operational flexibility and system optimization are complements to the firm's performance. The ordering policy with newsvendor ordering quantity can perform fairly well with moderate flexibility level when compared with the optimized ordering policy with full flexibility.
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Bibliographic InfoArticle provided by Elsevier in its journal Omega.
Volume (Year): 39 (2011)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description
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- Jun Zhang, 2005. "Transshipment and Its Impact on Supply Chain Members' Performance," Management Science, INFORMS, vol. 51(10), pages 1534-1539, October.
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- Tang, Shao-Long & Yan, Hong, 2010. "Pre-distribution vs. post-distribution for cross-docking with transshipments," Omega, Elsevier, vol. 38(3-4), pages 192-202, June.
- Jan A. Van Mieghem & Nils Rudi, 2002. "Newsvendor Networks: Inventory Management and Capacity Investment with Discretionary Activities," Manufacturing & Service Operations Management, INFORMS, vol. 4(4), pages 313-335, August.
- William C. Jordan & Stephen C. Graves, 1995. "Principles on the Benefits of Manufacturing Process Flexibility," Management Science, INFORMS, vol. 41(4), pages 577-594, April.
- Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
- Su, Ping & Tian, Zhongjun & Wang, Haiyan, 2012. "On service degrade at a discount: Capacity, demand pooling, and optimal discounting," Omega, Elsevier, vol. 40(3), pages 358-367.
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