Dr. Hussein Naseraldin
Industrial Engineering and Management
Ort Braude College
Impacts of Practicing Lateral Transshipments on Designing and Operating a Supply Chain
Lateral transshipment is a recourse activity intended to improve the performance of the system by moving stock from one retail outlet to another. Typically, transshipments are carried out whenever a retail outlet faces an excess of inventory and another retail outlet faces a shortage. Our aim in this study is to evaluate the impacts of practicing lateral transshipments on designing a supply chain and operating it. Specifically, we quantify the impact that lateral transshipment may have on the system's performance. We investigate a system that is comprised of retail outlets and customers; both of which are located on a homogenous finite line segment. In each period, the customers on the whole line pose a stochastic demand that is normally distributed. We analyze this stochastic inventory system in an infinite-horizon setting and we use the total expected cost as the performance measure. Managing such a system entails determining various decisions that have different planning horizons. Decisions such as the number and location of retail outlets are part of the strategic design of the supply chain. Decisions such as the inventory replenishment levels and the lateral transshipment quantities are part of the operational planning of the supply chain. Though integrating decisions that affect different planning horizons, e.g., strategic and operational, necessarily leads to a better solution than if they were determined separately, this integration is rare. This rareness is due to the difficulties in modeling the interrelated nature of these decisions. Modeling the interaction among operational, tactical, and strategic decisions is about properly integrating the corresponding decision variables into a single model that simultaneously finds the optimal values of each decision variable.
Our contribution in this study focuses on shedding light on the relations among various settings of the supply chain at hand. We compare our proposed simultaneous approach to a hierarchical approach in which first we determine the strategic decisions and once these are made, we determine the tactical decisions, subject to the strategic decisions made earlier. Only after these two hierarchies of decisions are made, we consider the operational decisions, subject to all decisions determined earlier. This approach of decision-making leads to solutions that are not necessarily the best solutions that the decision-maker can make. Our model sheds light on the benefits of integrating these decisions. The analysis of the model enhances the understanding of the impacts of practicing lateral transshipments on the system's performance.
This is a joint work with Yale T. Here from the Technion – Israel Institute of Technology.