IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v187y2017icp159-167.html
   My bibliography  Save this article

Lower bounding inventory allocations for risk pooling in two-echelon supply chains

Author

Listed:
  • Edirisinghe, Chanaka
  • Atkins, Derek

Abstract

This paper addresses the effect of risk-pooling when a single supplier, or a depot, distributes a single commodity to multiple retailers in a two-echelon framework. The demands at the retailers are random and may possibly be correlated. Rather than shipping the full order of inventory from the warehouse at once to the retailer, shipments in two periods within an inventory cycle in a two-echelon format (under observation of real-time demand) yields improved system performance, both in terms of cost and inventory distribution in the system. A lower bounding inventory shipment policy is determined which is utilized to investigate the system performance under two simple heuristics. The allocation policies are based only on marginal distributions of retailer demands, yet, they are quite effective in our computational testing under demand probability distributions such as normal or negative exponential. Our computations also provide evidence that significant improvements in expected unfilled demand during an inventory cycle can be gained due to risk pooling in a two-echelon allocation policy.

Suggested Citation

  • Edirisinghe, Chanaka & Atkins, Derek, 2017. "Lower bounding inventory allocations for risk pooling in two-echelon supply chains," International Journal of Production Economics, Elsevier, vol. 187(C), pages 159-167.
    • Handle: RePEc:eee:proeco:v:187:y:2017:i:c:p:159-167
    DOI: 10.1016/j.ijpe.2017.02.015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527317300543
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2017.02.015?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yue Dai & Shu-Cherng Fang & Xiaoli Ling & Henry Nuttle, 2008. "Risk pooling strategy in a multi-echelon supply chain with price-sensitive demand," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 67(3), pages 391-421, June.
    2. Borgonovo, E. & Peccati, L., 2009. "Financial management in inventory problems: Risk averse vs risk neutral policies," International Journal of Production Economics, Elsevier, vol. 118(1), pages 233-242, March.
    3. Chanaka Edirisinghe & Derek Atkins & Paul Iyogun, 1994. "Bounds on stochastic convex allocation problems," Applied Stochastic Models and Data Analysis, John Wiley & Sons, vol. 10(2), pages 123-140.
    4. Bruce W. Schmeiser, 1979. "Approximations to the Inverse Cumulative Normal Function for Use on Hand Calculators," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 28(2), pages 175-176, June.
    5. E. Page, 1977. "Approximations to the Cumulative Normal Function and its Inverse for Use on a Pocket Calculator," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 26(1), pages 75-76, March.
    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. Serguei Netessine & Nils Rudi, 2006. "Supply Chain Choice on the Internet," Management Science, INFORMS, vol. 52(6), pages 844-864, June.
    8. Gary D. Eppen, 1979. "Note--Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem," Management Science, INFORMS, vol. 25(5), pages 498-501, May.
    9. Kevin Weng, Z., 1999. "Risk-pooling over demand uncertainty in the presence of product modularity," International Journal of Production Economics, Elsevier, vol. 62(1-2), pages 75-85, May.
    10. Liu, Kaijun & Zhou, Yonghong & Zhang, Zigang, 2010. "Capacitated location model with online demand pooling in a multi-channel supply chain," European Journal of Operational Research, Elsevier, vol. 207(1), pages 218-231, November.
    11. Ravi Anupindi & Yehuda Bassok, 1999. "Centralization of Stocks: Retailers vs. Manufacturer," Management Science, INFORMS, vol. 45(2), pages 178-191, February.
    12. Peter L. Jackson, 1988. "Stock Allocation in a Two-Echelon Distribution System Or "What to Do Until Your Ship Comes In"," Management Science, INFORMS, vol. 34(7), pages 880-895, July.
    13. Paul H. Zipkin, 1980. "Simple Ranking Methods for Allocation of One Resource," Management Science, INFORMS, vol. 26(1), pages 34-43, January.
    14. Johan Marklund & Kaj Rosling, 2012. "Lower Bounds and Heuristics for Supply Chain Stock Allocation," Operations Research, INFORMS, vol. 60(1), pages 92-105, February.
    15. Jammernegg, Werner & Kischka, Peter, 2009. "Risk preferences and robust inventory decisions," International Journal of Production Economics, Elsevier, vol. 118(1), pages 269-274, March.
    16. 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.
    17. Marshall Fisher & Ananth Raman, 1996. "Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales," Operations Research, INFORMS, vol. 44(1), pages 87-99, February.
    18. Awi Federgruen & Paul Zipkin, 1984. "Approximations of Dynamic, Multilocation Production and Inventory Problems," Management Science, INFORMS, vol. 30(1), pages 69-84, January.
    19. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    20. Park, Sukun & Lee, Tae-Eog & Sung, Chang Sup, 2010. "A three-level supply chain network design model with risk-pooling and lead times," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(5), pages 563-581, September.
    21. Navneet Vidyarthi & Emre Çelebi & Samir Elhedhli & Elizabeth Jewkes, 2007. "Integrated Production-Inventory-Distribution System Design with Risk Pooling: Model Formulation and Heuristic Solution," Transportation Science, INFORMS, vol. 41(3), pages 392-408, August.
    22. Xuan Zhao & Derek Atkins, 2009. "Transshipment between competing retailers," IISE Transactions, Taylor & Francis Journals, vol. 41(8), pages 665-676.
    23. Yang, Hongsuk & Schrage, Linus, 2009. "Conditions that cause risk pooling to increase inventory," European Journal of Operational Research, Elsevier, vol. 192(3), pages 837-851, February.
    24. Jovan Grahovac & Amiya Chakravarty, 2001. "Sharing and Lateral Transshipment of Inventory in a Supply Chain with Expensive Low-Demand Items," Management Science, INFORMS, vol. 47(4), pages 579-594, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Choi, Tsan-Ming & Chen, Yue & Chung, Sai Ho, 2019. "Online-offline fashion franchising supply chains without channel conflicts: Choices on postponement and contracts," International Journal of Production Economics, Elsevier, vol. 215(C), pages 174-184.
    2. Park, Seung Jae, 2018. "Swapping inventory between competing firms," International Journal of Production Economics, Elsevier, vol. 199(C), pages 26-46.

    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. Peeyush Vats & Gunjan Soni & Ajay Pal Singh Rathore & Surya Prakash Yadav, 2019. "A demand aggregation approach for inventory control in two echelon supply chain under uncertainty," OPSEARCH, Springer;Operational Research Society of India, vol. 56(3), pages 840-868, September.
    2. Yossi Aviv & Awi Federgruen, 2001. "Design for Postponement: A Comprehensive Characterization of Its Benefits Under Unknown Demand Distributions," Operations Research, INFORMS, vol. 49(4), pages 578-598, August.
    3. Nagihan Çömez & Kathryn E. Stecke & Metin Çakanyildirim, 2012. "In-Season Transshipments Among Competitive Retailers," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 290-300, April.
    4. Kim, Nayeon & Montreuil, Benoit & Klibi, Walid & Zied Babai, M., 2023. "Network inventory deployment for responsive fulfillment," International Journal of Production Economics, Elsevier, vol. 255(C).
    5. Charles J. Corbett & Kumar Rajaram, 2006. "A Generalization of the Inventory Pooling Effect to Nonnormal Dependent Demand," Manufacturing & Service Operations Management, INFORMS, vol. 8(4), pages 351-358, August.
    6. 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.
    7. Mila Nambiar & David Simchi‐Levi & He Wang, 2021. "Dynamic Inventory Allocation with Demand Learning for Seasonal Goods," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 750-765, March.
    8. Huaxiao Shen & Tian Tian & Han Zhu, 2019. "A Two-Echelon Inventory System with a Minimum Order Quantity Requirement," Sustainability, MDPI, vol. 11(18), pages 1-22, September.
    9. Sodero, Annibal C. & Namin, Aidin & Gauri, Dinesh K. & Bhaskaran, Sreekumar R., 2021. "The strategic drivers of drop-shipping and retail store sales for seasonal products," Journal of Retailing, Elsevier, vol. 97(4), pages 561-581.
    10. Yang, Hongsuk & Schrage, Linus, 2009. "Conditions that cause risk pooling to increase inventory," European Journal of Operational Research, Elsevier, vol. 192(3), pages 837-851, February.
    11. Awi Federgruen & C. Daniel Guetta & Garud Iyengar, 2018. "Two‐echelon distribution systems with random demands and storage constraints," Naval Research Logistics (NRL), John Wiley & Sons, vol. 65(8), pages 594-618, December.
    12. Eda Kemahl{i}ou{g}lu-Ziya & John J. Bartholdi, III, 2011. "Centralizing Inventory in Supply Chains by Using Shapley Value to Allocate the Profits," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 146-162, September.
    13. 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.
    14. Çömez-Dolgan, Nagihan & Dağ, Hilal & Fescioglu-Unver, Nilgun & Şen, Alper, 2023. "Multi-plant manufacturing assortment planning in the presence of transshipments," European Journal of Operational Research, Elsevier, vol. 310(3), pages 1033-1050.
    15. Kostas Bimpikis & Mihalis G. Markakis, 2016. "Inventory Pooling Under Heavy-Tailed Demand," Management Science, INFORMS, vol. 62(6), pages 1800-1813, June.
    16. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    17. Jiri Chod & Nils Rudi, 2005. "Resource Flexibility with Responsive Pricing," Operations Research, INFORMS, vol. 53(3), pages 532-548, June.
    18. Olof Stenius & Ayşe Gönül Karaarslan & Johan Marklund & A. G. de Kok, 2016. "Exact Analysis of Divergent Inventory Systems with Time-Based Shipment Consolidation and Compound Poisson Demand," Operations Research, INFORMS, vol. 64(4), pages 906-921, August.
    19. 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.
    20. Çömez-Dolgan, Nagihan & Tanyeri, Başak, 2015. "Inventory performance with pooling: Evidence from mergers and acquisitions," International Journal of Production Economics, Elsevier, vol. 168(C), pages 331-339.

    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:eee:proeco:v:187:y:2017:i:c:p:159-167. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    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.