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The use of simple calibrations of the individual locations in making transhipment decisions in a multi-location inventory network

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<mark>Journal publication date</mark>2010
<mark>Journal</mark>Journal of the Operational Research Society
Volume61
Number of pages12
Pages (from-to)294-305
Publication statusPublished
Original languageEnglish

Abstract

Demands occur at each location in a network of stock-holding retail outlets. Should a location run out of stock between successive replenishments, then subsequent demands may be met either by transshipping from another location in the network or by an emergency supply from a central depot. We deploy an approximate stochastic dynamic programming approach to develop a class of interpretable and implementable heuristics for making transshipment decisions (whether and from where to transship) which make use of simple calibrations of the candidate locations. The calibration for a location depends upon its current stock, the time to its next replenishment and the identity of the location needing stock. A numerical investigation shows strong performance of the proposed policies in comparison with standard industry practice (complete pooling, no pooling) and a recently proposed heuristic. It points to the possibility of substantial cost savings over current practice.