Work

Application of Lateral Transshipment in Cost Reduction of Decentralized Systems

Year: 2020

Type: article

Abstract: COVID-19 has exposed the global supply chains to great vulnerability. In such extreme circumstances, product availability becomes a primary concern. This paper studies a basic inventory management strategy—lateral transshipment—under decentralized systems, which may play an important role in dealing with stockouts during unexpected crises. Lateral transshipments not only react quickly to stockout, but are also environmentally friendly due to the significant reduction of production and transportation pollution. This paper studies optimal lateral transshipment and replenishment decisions under a decentralized setting. We construct a multi-stage stochastic model that captures demand uncertainty and customer switching behavior. We demonstrate that, similar to the centralized setting, the optimal transshipment decision follows a double-threshold structure. The optimal replenishment quantities are determined under two pricing mechanisms—individual mechanism (IP) and negotiated mechanism (NP). Numerical examples are provided to demonstrate the impact of lateral transshipment on supply chain cost reduction.

Source: Sustainability

DOI: 10.3390/su12125081

Authors: Yi Liao, Jun Li, Xinxin Hu, Ying Li, Wenjing Shen

Institutions: Southwestern University of Finance and Economics, University of Houston - Downtown, Texas A&M University, Drexel University

Language: English

Topic: Supply Chain and Inventory Management

Subfield: Management Information Systems

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Responsible consumption and production, Industry, innovation and infrastructure

Open Access status: gold

Estimated APC paid: $1,901