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Lateral transshipment with partial request and random switching
Journal article   Peer reviewed

Lateral transshipment with partial request and random switching

Ying Li, Yi Liao, Xinxin Hu and Wenjing Shen
Omega (Oxford), v 92, 102134
Apr 2020
DOI: https://doi.org/10.1016/j.omega.2019.102134
Featured in Collection :   UN Sustainable Development Goals @ Drexel

Abstract

Lateral transshipment Random switching Supply chain management
•We study lateral transshipment while incorporating the impact of common customer behaviors like partial request and random switching.•To the best of our knowledge, our model is the first in lateral transshipment literature that allows those two behaviors to happen at the same time.•The optimal transshipment decision can be zero, partial, or full transshipment, and the optimal policy follows a double-threshold structure.•We devise an easy-to-use heuristic with low information requirement based on the structure of the optimal transshipment policy.•The consistent, near-optimal performances of the heuristic are a confirmation of the importance of the optimal transshipment policy. A large body of inventory management research has been devoted to lateral transshipment. Most of the existent models assume that the unmet local demand will automatically request transshipment, and that the unmet local demand does not seek inventory at other locations within the same echelon. In contrast, we investigate a two-store retailer’s inventory replenishment and transshipment decisions when those two assumptions do not hold. Specifically, we use a fixed request rate to model partial demand for transshipment at the shortage store and a random switch rate to model the arrival of the unmet demand at the surplus store. We characterize the optimal transshipment and inventory replenishment policies. We find that it is not always in the best interest of the retailer to satisfy as much as possible the transshipment demand. In light of the switched demand flowing to the surplus store, the retailer may benefit from saving the leftover inventory at the surplus store for the switched demand. The optimal transshipment policy follows a double-threshold structure when the prospect of the switched demand is not large enough; and a transshipment quantity of zero becomes optimal otherwise. Through an extensive numerical analysis, we examine the impact of the request rate and the switch rate, together with other parameters. We also evaluate a few simple-to-use transshipment heuristics, including one that we devise based on the structure of the optimal transshipment policy. The consistent, near-optimal performance of the devised heuristic is a confirmation of the importance of our theoretical work on the optimal policy.

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13 citations in Web of Science
18 citations in Scopus

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UN Sustainable Development Goals (SDGs)

This publication has contributed to the advancement of the following goals:

#12 Responsible Consumption & Production

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Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Management
Operations Research & Management Science
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