An integrated approach for the operations of distribution and lateral transshipment for seasonal products - A case study in household product industry

Abstract

The household product industry often suffers from problems of high operational costs and/or lost sales from selling seasonal products since managers in different divisions/stages of the supply chain make their decisions independently. We are therefore motivated to propose an approach that integrates the operations in the three stages of a supply chain for the management of seasonal products. The goal of this study is to minimize the total costs incurred for the seasonal products in the whole selling period. In the first stage, we employ a newsvendor model to determine the optimal one-time-only order quantities of the seasonal products. Then, we utilize a clustering analysis in the second stage to categorize seasonal products into groups, and establish an optimal replenishment policy for the products in the same group. Finally, the third stage starts when the warehouse runs out of its inventory. We formulate a mathematical model to determine the optimal transshipment quantities among all of the retailers to minimize the expected total costs incurred for the rest of the selling period. Taking a household product company in Taiwan as our case study, we demonstrate the implementation of the proposed (integrated) approach. Based on the real-world data of 17 seasonal products, we show that our integrated approach significantly outperforms the company's current approach. Therefore, our integrated approach may serve as an effective decision support tool for the distribution and lateral transshipment of seasonal products in the household product industry.