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COPYRIGHT 2005 Management Futures
Emergency shipments from higher and/or same echelon levels are one of the popular tools to handle the stock-out position at some warehouse. Our paper deals with a lateral stock transshipment model involving one plant and two warehouses, lateral transshipment is considered as an option at each re-order decision under the standard (r,Q) inventory replenishment policy. We focus on incorporating the above stock transfer feature in the order fulfillment decision and designed an simulation to find the effect of lateral stock transfer policy on various parameters viz. average inventory at each warehouse, average number of stock-out days at each warehouse, total cost (comprising of inventory cost, stock-out cost and transportation cost). The experimental results show that the stock transfer policy has the potential to reduce the total cost, average inventory and average stock-out days. We have also compared the cases where information is shared online or with some delay. The delay is because of serial communication between the supply chain players. The results show that there are benefits of no information delay i.e. online information sharing over the case with information delay.
Introduction
One of the key issues in multiple retailer inventory system, where each retailer is facing random demand, is to handle the stock-out position at one retailer when there is inventory at other retailer. This situation can be resolved either by emergency order to the higher echelon or lateral transshipment from other retailer having inventory to spare. Companies are utilizing emergency lateral transshipments between retailers to meet customer demand to improve service levels and / or reduce costs [Minner et al. (2003)]. The savings in the expected lost sales and inventory costs at the retailers may balance the excess cost of lateral transshipment [Robinson (1990)]. The other issue of lateral transshipment is to figure out the factors influencing the lateral transshipment and its impact on system performance levers (2001)]. Recently, Hong-Minh et al. (2000) compared emergency lateral transshipment policy with different strategies for improving customer service. The strategies considers are: EPOS (marketplace information is shared between supply chain players), Excel (stock levels in all locations are centrally controlled), emergency transshipments (transportation route bypassing an echelon), and eliminate (an echelon is removed from the supply chain). They evaluated the strategies by simulation exercise and found that emergency transshipments has a strong impact on customer service level and eliminate results in less stock for an improved customer service level.
The common point in all the earlier studies including Das (1975), Lee (1987), Axsater (2003), etc. is that the lateral transshipment is allowed only in case of stock-out situations, i.e. during emergencies. Some of the...
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