Lateral transshipment and expedited shipping in disruption recovery: A mean-CVaR approach

Abstract

Lateral transshipment and expedited shipping are the sourcing flexibility strategies that are employed to reduce inventory cost and increase service level. In this context, this study investigates the effects of lateral transshipment and expedited shipping on supply chain performance in presence of disruptions. A retail system with multiple distribution centers and multiple retailers is considered in this study. To determine the ordering policy parameters for the retailers, a simulation-based optimization approach is developed. The proposed approach considers both average supply chain cost and the worst-case supply chain cost. Moreover, decision maker’s risk attitude is modeled in the objective function as a trade-off between the average supply chain cost and the worst-case supply chain cost. In the computational experiments, two alternative system configurations, which are characterized by lateral transshipment and lateral transshipment and expediting, are compared with the base-case configuration with no sourcing flexibility. The results reveal that lateral transshipment is a cost-efficient stock-out risk mitigation strategy. Therefore, it is preferable for risk-moderate decision makers. On the other hand, for the systems with tight service level objectives, expedited shipping can be preferred since it is an effective stock-out risk mitigation strategy despite the high average supply chain cost.