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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
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    References listed on IDEAS

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