The multilocation transshipment problem

Yale T. Herer · Michal Tzur · Enver Yücesan

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Supply Chain and Inventory Management Sustainable Supply Chain Management Facility Location and Emergency Management

Abstract

We consider a supply chain, which consists of several retailers and one supplier. The retailers, who possibly differ in their cost and demand parameters, may be coordinated through replenishment strategies and transshipments, that is, movement of a product among the locations at the same echelon level. We prove that in order to minimize the expected long-run average cost for this system, an optimal replenishment policy is for each retailer to follow an order-up-to S policy. Furthermore, we demonstrate how the values of the order-up-to quantities can be calculated using a sample-path-based optimization procedure. Given an order-up-to S policy, we show how to determine an optimal transshipment policy, using a linear programming/network flow framework. Such a combined numerical approach allows us to study complex and large systems.

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References

1951A Stochastic Approximation Method 2017Journal of Industrial Engineering 1995Principles on the Benefits of Manufacturing Process Flexibility 1991Gradient Estimation via Perturbation Analysis 1979Note—Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem 2001A Two-Location Inventory Model with Transshipment and Local Decision Making 1979A gradient technique for general buffer storage design in a production line 1990Optimal and Approximate Policies in Multiperiod, Multilocation Inventory Models with Transshipments

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