Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 226, Issue 3, Pages 425-435Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2012.11.014
Keywords
Simulation applications: sample average approximation; Random search; Infinitesimal perturbation analysis; Inventory/production: multi-location transshipments
Funding
- PriceWaterhouseCoopers
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We consider coordination among stocking locations through replenishment strategies that explicitly take into account lateral transshipments, i.e., transfer of a product among locations at the same echelon level. Our basic contribution is the incorporation of supply capacity into the traditional transshipment model. Our goal is to analyze the impact on system behavior and on stocking locations' performance of the fact that the supplier may fail to fulfill all the replenishment orders. We therefore formulate the capacitated supply scenario as a network flow problem embedded in a stochastic optimization problem, which is solved through a sample average approximation method. We find that, depending on the production capacity, system behavior can vary drastically. Moreover, in a production-inventory system, we find evidence that either capacity flexibility (i.e., extra production) or transshipment flexibility (i.e., pooling) is required to maintain a desired level of service. (C) 2012 Elsevier B.V. All rights reserved.
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