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.
Highlights
The outbreak of coronavirus disease 2019 (COVID-19) may change the global supply chains permanently
We review some related literature on lateral transshipment
We demonstrate that lateral transshipment works well in saving the total cost of the supply chain in decentralized systems
Summary
The outbreak of coronavirus disease 2019 (COVID-19) may change the global supply chains permanently. Some traditional businesses have been completely shut down due to containment policies and trade restrictions. Even though there have been many progresses on predicting COVID-19 [4,5,6], no cure or vaccine is available now. The sustainability of global supply chains will still be under threat if demand cannot recover in a timely fashion. The prosperous “new retailing” has greatly helped in China’s case. Consumers make orders online from online retailers such as jd.com and Alibaba, and pick up offline, avoiding unnecessary physical interactions, which helps to maintain the sustainability of the food supply chain during the pandemic. Various online platforms are available to maintain undisrupted service and telecom companies provide free programs for amusement. The facilitation of modern information technology, such as big data, artificial intelligence, etc., is essential for traditional companies to survive, as new technology is more efficient, and more resilient under extreme circumstances
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