The Multi-Location Transshipment Problem with Positive Replenishment Lead Times

Abstract:     
Transshipments, monitored movements of material at the same echelon of a supply chain, represent an effective pooling mechanism. With a single exception, research on transshipments overlooks replenishment lead times. The only approach for two-location inventory systems with non-negligible lead times could not be generalized to a multi-location setting, and the proposed heuristic method cannot guarantee to provide optimal solutions. This paper uses simulation optimization by combining an LP/network flow formulation with infinitesimal perturbation analysis to examine the multi-location transshipment problem with positive replenishment lead times, and demonstrates the computation of the optimal base stock quantities through sample path optimization. From a methodological perspective, this paper deploys an elegant duality-based gradient computation method to improve computational efficiency. In test problems, our algorithm was also able to achieve better objective values than an existing algorithm.

Number of Pages in PDF File: 43

Keywords: Transshipment, Simulation Optimization, Infinitesimal Perturbation Analysis (IPA)

JEL Classification: M, M11, R4, R41, C61

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