4.7 Article

Service differentiation through selective lateral transshipments

Journal

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 237, Issue 3, Pages 824-835

Publisher

ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2014.02.053

Keywords

Inventory; Service differentiation; Lateral transshipments; Spare parts

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We consider a multi-item spare parts problem with multiple warehouses and two customer classes, where lateral transshipments are used as a differentiation tool. Specifically, premium requests that cannot be met from stock at their preferred warehouse may be satisfied from stock at other warehouses (so-called lateral transshipments). We first derive approximations for the mean waiting time per class in a single-item model with selective lateral transshipments. Next, we embed our method in a multi-item model minimizing the holding costs and costs of lateral and emergency shipments from upstream locations in the network. Compared to the option of using only selective emergency shipments for differentiation, the addition of selective lateral transshipments can lead to significant further cost savings (14% on average). (C) 2014 Elsevier B.V. All rights reserved.

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