A Two-Location Inventory Model with Transshipment and Local Decision Making

In situations where a seller has surplus stock and another seller is stocked out, it may be desirable to transfer surplus stock from the former to the latter. We examine how the possibility of such transshipments between two independent locations affects the optimal inventory orders at each location...

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Bibliographic Details
Published in:	Management science Vol. 47; no. 12; pp. 1668 - 1680
Main Authors:	Rudi, Nils, Kapur, Sandeep, Pyke, David F
Format:	Journal Article
Language:	English
Published:	Linthicum INFORMS 01-12-2001 Institute for Operations Research and the Management Sciences
Series:	Management Science
Subjects:	Business orders Business studies Channel coordination Decision making Distribution of profits Economic models Equilibrium Game theory Inventories Inventory management Management science Mathematical methods Mathematical models Nash Equilibrium Newsvendor Model Nonprofit hospitals Order quantity Profit Profitability Shipments Studies Transshipment Transshipments Unit costs
Online Access:	Get full text
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Summary:	In situations where a seller has surplus stock and another seller is stocked out, it may be desirable to transfer surplus stock from the former to the latter. We examine how the possibility of such transshipments between two independent locations affects the optimal inventory orders at each location. If each location aims to maximize its own profitswe call this local decision makingtheir inventory choices will not, in general, maximize joint profits. We find transshipment prices which induce the locations to choose inventory levels consistent with joint-profit maximization.
Bibliography:	ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23
ISSN:	0025-1909 1526-5501
DOI:	10.1287/mnsc.47.12.1668.10235