AJIBM  Vol.7 No.1 , January 2017
Intra-Firm Inventory Management Model with Transshipments
Abstract: This paper analyzes the implementation of transshipments among two independent locations which belong to one parent firm and the impact of transshipments, when implemented between these two locations. We examine how the possibility of such transshipments affects the optimal inventory orders at each location and find that, if each location aims to maximize its own profit, their inventory choices will not in general maximize joint profits. However, we find transshipment prices which if implemented by the parent firm as incentive design will make each location behave in order to optimize aggregate profit.
Keywords: Inventory Management, Transshipments, Newsvendor Model
Cite this paper: Anthony, B. and Augustin, D. (2017) Intra-Firm Inventory Management Model with Transshipments. American Journal of Industrial and Business Management, 7, 15-26. doi: 10.4236/ajibm.2017.71002.

[1]   Thomas, I., Abriatis, W. and Savage, C. (2013) Manufacturing and Trade: Inventories and Sales—December 2013. U.S. Department of Commerce.

[2]   Wilson, R. (1934) A Scientific Routine for Stock Control. Harvard Business Review, 13, 116-128.

[3]   Paterson, C., Kiesmuller, G., Teunter, R. and Clazebrook, K. (2011) Inventory Models with Lateral Transshipments: A Review. European Journal of Operational Research, 210, 125-136.

[4]   Cohen, M., Cull, C., Lee, H. and Willen, D. (2000) Saturn’s Supply-Chain Innovation: High Value in After-Sales Service. Sloan Management Review Summer, 2, 93-101.

[5]   Aggarwal, S.P. (1967) Inventory Control Aspect in Warehouses. In: Symposium on Operations Research, Indian National Science Academy, New Delhi.

[6]   Krishnan, K.S. and Rao, V.R.K. (1965) Inventory Control in N Warehouses. Journal of Industrial Engineering, 16, 212-215.

[7]   Jonsson, H. and Silver, E.A. (1987) Analysis of a Two-Echelon Inventory Control System with Complete Redistribution. Management Science, 33, 215-227.

[8]   Tagaras, G. (1989) Effects of Pooling on the Optimization and Service Levels of Two-Location Inventory Systems. IIE Transactions, 21, 250-257.

[9]   Chase, R.B., Jacobs, F.R. and Aquilano, N.J. (2006) Operations Management for Competitive Advantage with Global Cases. McGraw-Hill/Irwin, Boston.

[10]   Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E. (2008) Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies. 3rd Edition, McGraw-Hill Irwin, Boston.

[11]   Arrow, K.J., Harris, T. and Marschak, J. (1951) Optimal Inventory policy. Econometrica, 19, 250-272.

[12]   Coyle, J.J., Bardi, E.J. and Langley, C.J.J. (2003) The Management of Business Logistics: A Supply Chain Perspective. Thomson South Western, Mason.

[13]   Dvoretzky, A., Kiefer, J. and Wolfowitz, J. (1952) The Inventory Problem: I. Case of Known Distributions of Demand. Econometrica, 20, 187-222.

[14]   Dvoretzky, A., Kiefer, J. and Wolfowitz, J. (1952) The Inventory Problem: II. Case of Unknown Distributions of Demand. Econometrica, 20, 450-466.

[15]   Chu, Y. and You, F. (2014) Simulation-Based Optimization for Multi-Echelon Inventory Systems under Uncertainty. Proceedings of the 2014 Winter Simulation Conference, Savannah, 7-10 December 2014, 385-394.

[16]   Handfield, R., Warsing, D. and Wu, X. (2009) (Q, r) Inventory Policies in a Fuzzy Uncertain Supply Chain Environment. European Journal of Operational Research, 197, 609-619.

[17]   Maiti, A., Maiti, M. and Maiti, M. (2009) Inventory Model with Stochastic Lead-Time and Price Dependent Demand Incorporating Advance Payment. Applied Mathematical Modeling, 33, 2433-2443.

[18]   Mandal, N.K., Roy, T.K. and Maiti, M. (2005) Multi-Objective Fuzzy Inventory Model with Three Constraints: A Geometric Programming Approach. Fuzzy Sets and Systems, 150, 87-106.

[19]   Ryu, S.W. and Lee, K.K. (2003) A Stochastic Inventory Model of Dual Sourced Supply Chain with Lead-Time Reduction. International Journal of Production Economics, 81-82, 513-524.

[20]   Solyali, O., Cordeau, J. and Laporte, G. (2012) Robust Inventory Routing under Demand Uncertainty. Transportation Science, 46, 327-340.

[21]   Robinson, L.W. (1990) Optimal and Approximate Policies in Multi-Period, Multilocation Inventory Models with Transshipments. Operations Research, 38, 278-295.

[22]   Hu, X., Duenyas, I. and Kapuscinski, R. (2008) Optimal Joint Inventory and Transshipment under Uncertain Capacity. Operations Research, 56, 881-897.

[23]   Zhao, H., Deshpande, V. and Ryan, J.K. (2008) Optimal Dynamic Production and Inventory Transshipment Policies for Multi-Location Make-to-Stock Systems. Operations Research, 56, 400-410.

[24]   Heide, V.D. and Roodbergen, K.J. (2013) Transshipment and Rebalancing Policies for Library Books. European Journal of Operational Research, 22, 447-456.

[25]   Yu, D.Z., Tang, S.Y. and Niederhoff, J. (2011) On the Benefits of Operational Flexibility in a Distribution Network with Transshipment. Omega, 39, 350-361.

[26]   Jiang, L. and Anupindi, R. (2010) Customer-Driven vs. Retailer-Driven Search: Channel Performance and Implications. Manufacturing and Service Operations Management, 12, 102-119.

[27]   Zhao, X. and Atkins, D. (2009) Transshipment between Competing Retailers. IIE Transactions, 41, 665-676.

[28]   Shen, W., Hu, X. and Liao, Y. (2014) Lateral Transshipment Strategy under Customer Request and Switching. Working Paper.

[29]   Zou, L., Dresner, M. and Windle, R. (2010) A Two-Location Inventory Model with Transshipments in a Competitive Environment. International Journal of Production Economics, 125, 235-250.

[30]   Rudi, N., Kapur, S. and Pyke, D. (2001) A Two-Location Inventory Model with Transshipment and Localdecision Making. Management Science, 47, 1668-1680.