Inventory sharing under decentralized preventive transshipments

Inventory sharing under decentralized preventive transshipments

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Article ID: iaor20106123
Volume: 57
Issue: 6
Start Page Number: 540
End Page Number: 562
Publication Date: Sep 2010
Journal: Naval Research Logistics
Authors: , ,
Keywords: supply & supply chains
Abstract:

We consider preventive transshipments between two stores in a decentralized system with two demand subperiods. Replenishment orders are made before the first subperiod, and the stores may make transshipments to one another between the subperiods. We prove that the transshipment decision has a dominant strategy, called a control‐band conserving transfer policy, under which each store chooses a quantity to transship in or out that will keep its second‐subperiod starting inventory level within a range called a control band. We prove that the optimal replenishment policy is a threshold policy in which the threshold depends on the capacity level at the other store. Finally, we prove that there does not exist a transfer price that coordinates the decentralized supply chain. Our research also explains many of the differences between preventive and emergency transshipments, including differences in the optimal transfer policies and the existence or nonexistence of transfer prices that coordinate the system.

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