In-Season Transshipments Among Competitive Retailers

Nagihan Çömez (), Kathryn E. Stecke () and Metin Çakanyildirim ()
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Nagihan Çömez: Faculty of Business Administration, Bilkent University, Bilkent, Ankara 06800, Turkey
Kathryn E. Stecke: School of Management, University of Texas at Dallas, Richardson, Texas 75083
Metin Çakanyildirim: School of Management, University of Texas at Dallas, Richardson, Texas 75083

Manufacturing & Service Operations Management, 2012, vol. 14, issue 2, 290-300

Abstract: A decentralized system of competing retailers that order and sell the same product in a sales season is studied. When a customer demand occurs at a stocked-out retailer, that retailer requests a unit to be transshipped from another retailer who charges a transshipment price. If this request is rejected, the unsatisfied customer may go to another retailer with a customer overflow probability. Each retailer decides on the initial order quantity from a manufacturer and on the acceptance/rejection of each transshipment request. For two retailers, we show that retailers' optimal transshipment policies are dynamic and characterized by chronologically nonincreasing inventory holdback levels. We analytically study the sensitivity of holdback levels to explain interesting findings, such as smaller retailers and geographically distant retailers benefit more from transshipments. Numerical experiments show that retailers substantially benefit from using optimal transshipment policies compared to no sharing. The expected sales increase in all but a handful of over 3,000 problem instances. Building on the two-retailer optimal policies, we suggest an effective heuristic transshipment policy for a multiretailer system.

Keywords: dynamic transshipment policy; demand overflow; decentralized distribution system (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (19)

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