Hybrid Lateral Transshipments in a Multi-Location Inventory System

Ruud Teunter, Colin Paterson and K. Glazebrook
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K. Glazebrook: Groningen University

No 10006, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: In managing networks of stock holding locations, two approaches to the pooling of inventory have been proposed. Reactive transshipm nts respond to stockouts at a location by moving inventory from elsewhere within the network, while proactive redistribution of stock seeks to minimise the chance of future shocks. This paper is the first to propose a hybrid approach in which transshipments are viewed as an opportunity for stock redistribution. We adopt a quasi-myopic approach to the development of a strongly performing hybrid transshipment policy. Numerical studies which utilise dynamic programming and simulation testify to the benefits of using transshipments proactively. In comparison to a purely reactive approach to transshipment, service levels are improved while a reduction in safety stock levels is achieved. The aggregate costs incurred in managing the system are significantly reduced, especially so for large networks facing high levels of demand.

Date: 2010
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