IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v47y2001i12p1668-1680.html
   My bibliography  Save this article

A Two-Location Inventory Model with Transshipment and Local Decision Making

Author

Listed:
  • Nils Rudi

    (The Simon School, University of Rochester, Rochester, New York 14627)

  • Sandeep Kapur

    (Department of Economics, Birkbeck College, London W1P 2LL, United Kingdom)

  • David F. Pyke

    (The Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755)

Abstract

In situations where a seller has surplus stock and another seller is stocked out, it may be desirable to transfer surplus stock from the former to the latter. We examine how the possibility of such transshipments between two independent locations affects the optimal inventory orders at each location. If each location aims to maximize its own profits---we call this local decision making---their inventory choices will not, in general, maximize joint profits. We find transshipment prices which induce the locations to choose inventory levels consistent with joint-profit maximization.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:12:p:1668-1680
    DOI: 10.1287/mnsc.47.12.1668.10235
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.47.12.1668.10235
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.47.12.1668.10235?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lawrence W. Robinson, 1990. "Optimal and Approximate Policies in Multiperiod, Multilocation Inventory Models with Transshipments," Operations Research, INFORMS, vol. 38(2), pages 278-295, April.
    2. T. W. Archibald & S. A. E. Sassen & L. C. Thomas, 1997. "An Optimal Policy for a Two Depot Inventory Problem with Stock Transfer," Management Science, INFORMS, vol. 43(2), pages 173-183, February.
    3. Hau Lee & Seungjin Whang, 1999. "Decentralized Multi-Echelon Supply Chains: Incentives and Information," Management Science, INFORMS, vol. 45(5), pages 633-640, May.
    4. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721, Elsevier.
    5. Uday S. Karmarkar, 1987. "The Multilocation Multiperiod Inventory Problem: Bounds and Approximations," Management Science, INFORMS, vol. 33(1), pages 86-94, January.
    6. H. Jönsson & E. A. Silver, 1987. "Analysis of a Two-Echelon Inventory Control System with Complete Redistribution," Management Science, INFORMS, vol. 33(2), pages 215-227, February.
    7. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    8. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    9. Hau L. Lee, 1987. "A Multi-Echelon Inventory Model for Repairable Items with Emergency Lateral Transshipments," Management Science, INFORMS, vol. 33(10), pages 1302-1316, October.
    10. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    11. Jan A. Van Mieghem, 1999. "Coordinating Investment, Production, and Subcontracting," Management Science, INFORMS, vol. 45(7), pages 954-971, July.
    12. Steven A. Lippman & Kevin F. McCardle, 1997. "The Competitive Newsboy," Operations Research, INFORMS, vol. 45(1), pages 54-65, February.
    13. Mahmut Parlar, 1988. "Game theoretic analysis of the substitutable product inventory problem with random demands," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(3), pages 397-409, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seifert, Ralf W. & Thonemann, Ulrich W. & Sieke, Marcel A., 2006. "Integrating direct and indirect sales channels under decentralized decision-making," International Journal of Production Economics, Elsevier, vol. 103(1), pages 209-229, September.
    2. Andy A. Tsay & Narendra Agrawal, 2000. "Channel Dynamics Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 372-391, August.
    3. 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.
    4. Tagaras, George, 1999. "Pooling in multi-location periodic inventory distribution systems," Omega, Elsevier, vol. 27(1), pages 39-59, February.
    5. Fernando Bernstein & Awi Federgruen, 2003. "Pricing and Replenishment Strategies in a Distribution System with Competing Retailers," Operations Research, INFORMS, vol. 51(3), pages 409-426, June.
    6. Jian Yang & Zhaoqiong Qin, 2007. "Capacitated Production Control with Virtual Lateral Transshipments," Operations Research, INFORMS, vol. 55(6), pages 1104-1119, December.
    7. Burton, Jonathan & Banerjee, Avijit, 2005. "Cost-parametric analysis of lateral transshipment policies in two-echelon supply chains," International Journal of Production Economics, Elsevier, vol. 93(1), pages 169-178, January.
    8. Paterson, Colin & Kiesmüller, Gudrun & Teunter, Ruud & Glazebrook, Kevin, 2011. "Inventory models with lateral transshipments: A review," European Journal of Operational Research, Elsevier, vol. 210(2), pages 125-136, April.
    9. Xinxin Hu & Izak Duenyas & Roman Kapuscinski, 2008. "Optimal Joint Inventory and Transshipment Control Under Uncertain Capacity," Operations Research, INFORMS, vol. 56(4), pages 881-897, August.
    10. De‐bi Cao & Edward A. Silver, 2005. "A dynamic allocation heuristic for centralized safety stock," Naval Research Logistics (NRL), John Wiley & Sons, vol. 52(6), pages 513-526, September.
    11. Tiacci, Lorenzo & Saetta, Stefano, 2011. "Reducing the mean supply delay of spare parts using lateral transshipments policies," International Journal of Production Economics, Elsevier, vol. 133(1), pages 182-191, September.
    12. 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.
    13. 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.
    14. Paterson, Colin & Teunter, Ruud & Glazebrook, Kevin, 2012. "Enhanced lateral transshipments in a multi-location inventory system," European Journal of Operational Research, Elsevier, vol. 221(2), pages 317-327.
    15. Ravi Anupindi & Yehuda Bassok & Eitan Zemel, 2001. "A General Framework for the Study of Decentralized Distribution Systems," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 349-368, February.
    16. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    17. 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.
    18. Banerjee, Avijit & Burton, Jonathan & Banerjee, Snehamay, 2003. "A simulation study of lateral shipments in single supplier, multiple buyers supply chain networks," International Journal of Production Economics, Elsevier, vol. 81(1), pages 103-114, January.
    19. T W Archibald, 2007. "Modelling replenishment and transshipment decisions in periodic review multilocation inventory systems," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(7), pages 948-956, July.
    20. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:47:y:2001:i:12:p:1668-1680. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.