Inventory Sharing Under Decentralized Preventive Transshipments

Rong, Y., L. V. Snyder, and Y. Sun, 2010. Inventory Sharing under Decentralized Preventive Transshipments, Naval Research Logistics, 57(6), 540-562

47 Pages Posted: 28 Mar 2008 Last revised: 30 Dec 2013

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Lawrence V. Snyder

Lehigh University - Department of Industrial and Systems Engineering

Yang Sun

California State University, Sacramento - College of Business Administration

Date Written: March 27, 2008

Abstract

We consider preventive transshipments between two stores in a decentralized system with two demand subperiods. Replenishment orders are made before the first subperiod, and the stores may make transshipments to one another between the subperiods. We prove that the transshipment decision has a dominant strategy, called a control-band conserving transfer policy, under which each store chooses a quantity to transship in or out that will keep its second-subperiod starting inventory level within a range called a control band. We prove that the optimal replenishment policy is a modified base-stock policy in which the order-up-to level depends on the initial inventory and capacity level at the other store. Finally, we prove that there does not exist a transfer price that coordinates the decentralized supply chain. Our research also explains many of the differences between preventive and lateral transshipments, including differences in the optimal transfer policies and the existence or nonexistence of transfer prices that coordinate the system.

Keywords: preventive transshipment, dominant strategy, iterated strict dominance

Suggested Citation

Rong, Ying and Snyder, Lawrence V. and Sun, Yang, Inventory Sharing Under Decentralized Preventive Transshipments (March 27, 2008). Rong, Y., L. V. Snyder, and Y. Sun, 2010. Inventory Sharing under Decentralized Preventive Transshipments, Naval Research Logistics, 57(6), 540-562. Available at SSRN: https://ssrn.com/abstract=1113956 or http://dx.doi.org/10.2139/ssrn.1113956

Ying Rong (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Lawrence V. Snyder

Lehigh University - Department of Industrial and Systems Engineering ( email )

Harold S. Mohler Laboratory
200 West Packer Avenue
Bethlehem, PA 18015-1582
United States

Yang Sun

California State University, Sacramento - College of Business Administration ( email )

School of Business Administration
Sacramento, CA 95819-6081
United States
916-278-6001 (Phone)

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