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A New Decision Rule for Lateral Transshipments in Inventory Systems

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  • Sven Axsäter

    (Department of Industrial Management and Logistics, Lund University, P.O. Box 118, SE--22100, Lund, Sweden)

Abstract

This paper deals with a single--echelon inventory system consisting of a number of parallel local warehouses facing compound Poisson demand. There are standard holding and backorder costs as well as ordering costs at all warehouses. Normally, the warehouses replenish from an outside supplier. However, lateral transshipments between the warehouses are also possible. Such transshipments take no time but incur additional costs. When a demand occurs at a warehouse, the question is whether the whole demand or part of it should be covered by a lateral transshipment from another warehouse. Given a set of alternative decisions, our decision rule minimizes the expected costs under the assumption that no further transshipments will take place. This rule is then used repeatedly as a heuristic. A simulation study illustrates how the suggested technique performs under different conditions.

Suggested Citation

  • Sven Axsäter, 2003. "A New Decision Rule for Lateral Transshipments in Inventory Systems," Management Science, INFORMS, vol. 49(9), pages 1168-1179, September.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:9:p:1168-1179
    DOI: 10.1287/mnsc.49.9.1168.16568
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    References listed on IDEAS

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    Cited by:

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    3. Ma, Hong & Miao, Zhaowei & Lim, Andrew & Rodrigues, Brian, 2011. "Crossdocking distribution networks with setup cost and time window constraint," Omega, Elsevier, vol. 39(1), pages 64-72, January.
    4. Mahesh Nagarajan & S. Rajagopalan, 2008. "Inventory Models for Substitutable Products: Optimal Policies and Heuristics," Management Science, INFORMS, vol. 54(8), pages 1453-1466, August.
    5. Jason Acimovic & Stephen C. Graves, 2015. "Making Better Fulfillment Decisions on the Fly in an Online Retail Environment," Manufacturing & Service Operations Management, INFORMS, vol. 17(1), pages 34-51, February.
    6. Milind Dawande & Srinagesh Gavirneni & Yinping Mu & Suresh Sethi & Chelliah Sriskandarajah, 2010. "On the Interaction Between Demand Substitution and Production Changeovers," Manufacturing & Service Operations Management, INFORMS, vol. 12(4), pages 682-691, September.
    7. Satır, Benhür & Savasaneril, Secil & Serin, Yasemin, 2012. "Pooling through lateral transshipments in service parts systems," European Journal of Operational Research, Elsevier, vol. 220(2), pages 370-377.
    8. Hui Zhao & Vinayak Deshpande & Jennifer K. Ryan, 2006. "Emergency transshipment in decentralized dealer networks: When to send and accept transshipment requests," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(6), pages 547-567, September.

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