Multi-period and Multi-product Inventory Management Model with Lateral Transshipments

Abstract

Inventory management plays an important role in supply chains. Through a correct inventory management policy, supply chains can close the gap created by the imbalance between supply and demand, eliminating costly supply chains. This paper aims to contribute to this goal and presents an Inventory Management (IM) policy implemented on a Mixed Integer Linear Programming (MILP) model that optimizes the flow of products through a multi-period and multi-product supply chain. Normally distributed demands are received at the retailers who replenish their stock from the regional warehouses, which, in turn, are supplied by a central warehouse. Lateral transshipment is allowed among regional warehouses and among retailers. In order to validate and compare the proposed policy against commonly used policies, the Continuous Review and the Periodic Review policies are modeled using the same approach and acting over the same system. The comparison of inventory management policies shows that the IM policy outperforms the classical policies in terms of material availability leading to an overall reduction of operational costs.