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Lateral transshipment with partial request and random switching

Author

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  • Li, Ying
  • Liao, Yi
  • Hu, Xinxin
  • Shen, Wenjing

Abstract

A large body of inventory management research has been devoted to lateral transshipment. Most of the existent models assume that the unmet local demand will automatically request transshipment, and that the unmet local demand does not seek inventory at other locations within the same echelon. In contrast, we investigate a two-store retailer’s inventory replenishment and transshipment decisions when those two assumptions do not hold. Specifically, we use a fixed request rate to model partial demand for transshipment at the shortage store and a random switch rate to model the arrival of the unmet demand at the surplus store. We characterize the optimal transshipment and inventory replenishment policies. We find that it is not always in the best interest of the retailer to satisfy as much as possible the transshipment demand. In light of the switched demand flowing to the surplus store, the retailer may benefit from saving the leftover inventory at the surplus store for the switched demand. The optimal transshipment policy follows a double-threshold structure when the prospect of the switched demand is not large enough; and a transshipment quantity of zero becomes optimal otherwise. Through an extensive numerical analysis, we examine the impact of the request rate and the switch rate, together with other parameters. We also evaluate a few simple-to-use transshipment heuristics, including one that we devise based on the structure of the optimal transshipment policy. The consistent, near-optimal performance of the devised heuristic is a confirmation of the importance of our theoretical work on the optimal policy.

Suggested Citation

  • Li, Ying & Liao, Yi & Hu, Xinxin & Shen, Wenjing, 2020. "Lateral transshipment with partial request and random switching," Omega, Elsevier, vol. 92(C).
  • Handle: RePEc:eee:jomega:v:92:y:2020:i:c:s0305048318309782
    DOI: 10.1016/j.omega.2019.102134
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    References listed on IDEAS

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    1. Dhahri, Akrem & Gharbi, Ali & Ouhimmou, Mustapha, 2022. "Integrated production-transshipment control policy for a two-location unreliable manufacturing system," International Journal of Production Economics, Elsevier, vol. 247(C).
    2. Cavagnini, Rossana & Bertazzi, Luca & Maggioni, Francesca, 2022. "A rolling horizon approach for a multi-stage stochastic fixed-charge transportation problem with transshipment," European Journal of Operational Research, Elsevier, vol. 301(3), pages 912-922.
    3. Zhang, Peng & Xu, Xiaofeng & Shi, Victor & Zhu, Jing, 2020. "Simultaneous inventory competition and transshipment between retailers," International Journal of Production Economics, Elsevier, vol. 230(C).
    4. Silbermayr, Lena & Waitz, Martin, 2024. "Omni-channel inventory management of perishable products under transshipment and substitution," International Journal of Production Economics, Elsevier, vol. 267(C).
    5. Li, Jin & Yi, Liao & Shi, Victor & Chen, Xiding, 2021. "Supplier encroachment strategy in the presence of retail strategic inventory: Centralization or decentralization?," Omega, Elsevier, vol. 98(C).

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