Abstract
To improve profitability and reduce demand uncertainty, lateral transshipment is employed in this study to reallocate inventory with updated demand information. A decentralized inventory system with two retailers ordering from one common supplier is analyzed. Each retailer places the order independently before the selling season begins based on original demand forecast. As lead time elapses, more information is collected to update the demand forecast and transshipment is examined. This study constructs a two-stage model and applies backward induction to solve the problem. A threshold transshipment policy is proposed at stage 2. The existence of unique Nash equilibrium is proven at stage 1. Both the centralized system with transshipment and the newsvendor-like system without transshipment are studied as benchmarks to evaluate the performance of transshipment in the decentralized system. Extensive numerical examples are conducted to provide some valuable management implications. The results show that transshipment can lead to profit increase, especially in the system with high informative value of demand forecast updates.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
