Application of Lateral Transshipment in Cost Reduction of Decentralized Systems
Abstract
:1. Introduction
2. Literature Review
3. Methodology
3.1. Basic Model Settings
- First, each store determines the replenishment level. and before realization of demand.
- Second, the local demands are realized respectively, with the realization of and , without loss of generality, say Store has excess stock, while Store runs out of stock, i.e., and .
- Third, Store requests transshipment from Store .
- Fourth, surplus Store determines the transshipment quantity to be shipped to Store before the observation of potential demand from unmet customers.
- Fifth, unsatisfied customers of Store switch to Store .
- Sixth, both stores collect revenue.
- ;
- ;
- ;
3.2. Optimal Transshipment Quantity
- (1)
- If, then.
- (2)
- Otherwise, there are two thresholds:andsuch that, and. The optimal transshipment quantity is determined based howcompares to the two thresholds. Specifically, (2a) if, we have; (2b); and (2c) if.
3.3. Optimal Replenishment Quantity
4. Results and Discussion
4.1. Benchmarks
4.2. Impact of Request Rate
4.3. Impact of Random Switching Rate
4.4. Managerial Insights
5. Conclusions
5.1. Concluding Remarks
5.2. Theoretical Contributions
5.3. Research Limitations and Future Directions
Author Contributions
Funding
Conflicts of Interest
Appendix A
- If , for any , we have ,
- If , denote and decreases in , we have and . Therefore, a unique optimal and . Specifically, (i) if , then ; (ii) if , then .
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Decision Variables | |
replenishment inventory level at Store ; | |
transshipment quantity from Store to Store ; | |
Model Parameters | |
unit procurement at Store ; | |
unit revenue at Store in local markets; | |
unit salvage value at Store ; | |
unit transshipment cost from Store to Store ; | |
unit revenue at Store for transshipment; | |
request rate at Store ; | |
local demand with a realization of , a cdf of and a pdf of | |
switch rate at Store percentage of Store ’s ultimately unmet demand that is switched to Store with a realization of , a cdf of and a pdf of ; |
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Liao, Y.; Li, J.; Hu, X.; Li, Y.; Shen, W. Application of Lateral Transshipment in Cost Reduction of Decentralized Systems. Sustainability 2020, 12, 5081. https://doi.org/10.3390/su12125081
Liao Y, Li J, Hu X, Li Y, Shen W. Application of Lateral Transshipment in Cost Reduction of Decentralized Systems. Sustainability. 2020; 12(12):5081. https://doi.org/10.3390/su12125081
Chicago/Turabian StyleLiao, Yi, Jun Li, Xinxin Hu, Ying Li, and Wenjing Shen. 2020. "Application of Lateral Transshipment in Cost Reduction of Decentralized Systems" Sustainability 12, no. 12: 5081. https://doi.org/10.3390/su12125081