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      Optimal transshipments and reassignments under periodic orcyclic holding cost accounting

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      Author
      Çömez, N.
      Stecke, K. E.
      Çakanyıldırım, M.
      Date
      2013
      Source Title
      Journal of the Operational Research Society
      Print ISSN
      0160-5682
      Publisher
      Palgrave Macmillan
      Volume
      64
      Issue
      10
      Pages
      1517 - 1539
      Language
      English
      Type
      Article
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      Abstract
      In a centrally managed system, inventory at a retailer can be transshipped to a stocked-out retailer to meet demand. As the inventory at the former retailer may be demanded by future customers of that retailer and transshipment time/cost is non-negligible, it can be more profitable to not transship in some situations. When unsatisfied demand is backordered, reassignment of inventory to a previously backordered demand can perhaps become profitable as demand uncertainty resolves over time. Despite this intuition, we prove that no reassignments are necessary for cost optimality under periodic holding cost accounting in a two-retailer system. This remains valid for multi-retailer systems according to numerical analyses. When holding costs are accounted for only at the end of each replenishment cycle, reassignments are necessary for optimality but insignificant in reducing the total cost. In most instances tested, the decrease in total cost from reassignments is below 2% for end of cycle holding cost accounting. These results simplify transshipment policies and facilitate finding good policies in both implementation and future studies, as reassignments can be omitted from consideration in optimization models under periodic holding cost accounting and in approximation models under cyclical cost accounting.
      Keywords
      Inventory Sharing
      Centrally Managed Inventory
      Stochastic Inventory Control
      Permalink
      http://hdl.handle.net/11693/13076
      Published Version (Please cite this version)
      http://dx.doi.org/10.1057/jors.2012.135
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