A two-item two-warehouse periodic review inventory model with transshipment

• Main Authors: RAMAKRISHNA, Koushik S., MOOSA, Sharafali, LIM, Yun Fong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Multi-item inventory; Transshipment; Pooling; Markov decision models; Lagrangian relaxation; Operations and Supply Chain Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3545; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4544/viewcontent/yflim_AOR_2014_TwoitemTwowarehouse_afv.pdf
• Institution: Singapore Management University

We study a two-item two-warehouse periodic review inventory model that allows transshipment between warehouses and emergency orders. The model helps to determine two decisions: (i) the order up to levels for the two items at the two warehouses, and (ii) whether to accept a transshipment request from the other warehouse. The acceptance of a transshipment request in a warehouse depends on the time until the next review epoch and the inventory level of the warehouse. We propose a search procedure, which is a combination of greedy heuristics and a Lagrangian relaxation method, to minimize the total operating cost of the system. Numerical experiments suggest that optimality can be achieved using the proposed procedure. The time threshold to accept a transshipment request in a warehouse increases with the emergency shipment cost. In addition, the more inventory available in the warehouse the more likely for a transshipment request to be accepted.