Capacitated Production Control with Virtual Lateral Transshipments

Jian Yang () and Zhaoqiong Qin ()
Additional contact information
Jian Yang: Department of Industrial and Manufacturing Engineering, New Jersey Institute of Technology, Newark, New Jersey 07102
Zhaoqiong Qin: Department of Management, Marketing, Strategy and Operations, Embry-Riddle Aeronautical University, Daytona Beach, Florida 32114

Operations Research, 2007, vol. 55, issue 6, 1104-1119

Abstract: We study the optimal control of a firm with two capacitated manufacturing plants situated in two distinct geographical regions. Demands from each region are mostly satisfied by the local plant. However, if necessary, some of the newly arrived demands can be designated to be served by the other, more remote, plant. The sources of the above virtual lateral transshipments, unlike the ones involved in the real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment processes. We develop results about the simultaneous preservation of supermodularity and diagonal dominances of the cost functions and then use these results to derive structural results for the optimal policies. Specifically, to perform optimally, we find that each plant should adopt a modified base-stock policy in observance of its own capacity, while the base level should mildly decrease in the other plant's starting inventory level. Our computational results illustrate the benefits realizable by using transshipment.

Keywords: dynamic programming/optimal control; Markov; inventory/production; multiechelon; manufacturing; strategy (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.1070.0410 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:55:y:2007:i:6:p:1104-1119

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().