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Hybrid Lateral Transshipments in a Multi-Location Inventory System

By K. Glazebrook, Colin Paterson and Ruud Teunter

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.

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