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Application of Lateral Transshipment in Cost Reduction of Decentralized Systems

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  • Yi Liao

    (School of Business Administration, Southwestern University of Finance and Economics, Chengdu 610074, China)

  • Jun Li

    (School of Business Administration, Southwestern University of Finance and Economics, Chengdu 610074, China)

  • Xinxin Hu

    (Marilyn Davies College of Business, University of Houston-Downtown, Houston, TX 77002, USA)

  • Ying Li

    (Mays Business School, Texas A & M University, College Station, TX 77843, USA)

  • Wenjing Shen

    (LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA)

Abstract

COVID-19 has exposed the global supply chains to great vulnerability. In such extreme circumstances, product availability becomes a primary concern. This paper studies a basic inventory management strategy—lateral transshipment—under decentralized systems, which may play an important role in dealing with stockouts during unexpected crises. Lateral transshipments not only react quickly to stockout, but are also environmentally friendly due to the significant reduction of production and transportation pollution. This paper studies optimal lateral transshipment and replenishment decisions under a decentralized setting. We construct a multi-stage stochastic model that captures demand uncertainty and customer switching behavior. We demonstrate that, similar to the centralized setting, the optimal transshipment decision follows a double-threshold structure. The optimal replenishment quantities are determined under two pricing mechanisms—individual mechanism (IP) and negotiated mechanism (NP). Numerical examples are provided to demonstrate the impact of lateral transshipment on supply chain cost reduction.

Suggested Citation

  • Yi Liao & Jun Li & Xinxin Hu & Ying Li & Wenjing Shen, 2020. "Application of Lateral Transshipment in Cost Reduction of Decentralized Systems," Sustainability, MDPI, vol. 12(12), pages 1-21, June.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:12:p:5081-:d:374835
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    References listed on IDEAS

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    2. Olli-Pekka Hilmola & Oskari Lähdeaho & Ville Henttu & Per Hilletofth, 2020. "Covid-19 Pandemic: Early Implications for North European Manufacturing and Logistics," Sustainability, MDPI, vol. 12(20), pages 1-13, October.
    3. Grace Chua & Kum Fai Yuen & Xueqin Wang & Yiik Diew Wong, 2021. "The Determinants of Panic Buying during COVID-19," IJERPH, MDPI, vol. 18(6), pages 1-28, March.
    4. Ting Qu & Tianxiang Huang & Duxian Nie & Yelin Fu & Lin Ma & George Q. Huang, 2022. "Joint Decisions of Inventory Optimization and Order Allocation for Omni-Channel Multi-Echelon Distribution Network," Sustainability, MDPI, vol. 14(10), pages 1-23, May.

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