The Multi-Location Transshipment Problem (IIE Transactions)

The authors consider a supply chain, which consists of several retailers and one supplier. The retailers, which possibly differ in their cost and demand parameters, may be coordinated through replenishment strategies and transshipments, that is, movement of a product among the locations at the same echelon level. They prove that in order to minimize the expected long-run average cost for this system, an optimal replenishment policy is for each retailer to follow an order-up-to S policy. Furthermore, they demonstrate how the values of the order-up-to quantities can be calculated using a sample-path-based optimization procedure. Given an order-up-to S policy, they show how to determine an optimal transshipment policy, using an LP/Network flow framework. Such a combined numerical approach allows us to study complex and large systems.