Transshipment Problems in Supply ChainSystems: Review and Extensions

Effective supply chain management (SCM) is currently recognized as a key determinant of competitiveness and success for most manufacturing and retailing organizations, because the implementation of supply chain management has significant impact on cost, service level, and quality. Numerous strategies for archiving these targets have been proposed and investigated in both practice and academic over the past decades. One such strategy, commonly practiced in multi-location supply chain systems facing stochastic demand, allows movement of stock between locations at the same echelon level or even across different levels. These stock movements are termed lateral transshipments, or simply, transshipments. As a demand occurs under the implementation of transshipment strategy, there will be three possible activities—the demand is met from the stock on-hand or it is met via transshipment from another location in the system or it is backordered. In another words, firstly, if a location’s on-hand inventory level is greater than the demand size, then the demand is met. Secondly, if the on-hand inventory level is positive but less than the demand size, then it is used to partially satisfy the demand and the remaining demand is met either via transshipment or is backordered. Thirdly, if the on-hand inventory level is zero, the demand is met via transshipment or is backordered under the assumption of no lost sale. In addition to the same echelon level transshipment, when neither one location’s same level partners in the same region nor its designated supplier/warehouse/or distribution center lack sufficient inventory to meet the demand, the unmet remaining demand can be fulfilled from the upper-level supplier which may not belong to the same geographical region. This practice is defined as cross-level transshipment. The illustration of transshipment is depicted in Figure 1. Therefore, transshipment policy can improve stock availability, i.e., customer service level, without increasing stock level which may induce higher inventory relevant cost. In another words, transshipments enable the sharing of stock among locations, they facilitate each location as a secondary, random supply source for the remainder. Thus, the locations’ replenishment can be coordinated and even combined in order to avoid excessive inventory costs. Transshipment research is motivated by observations from various industries. It has gained increasingly attention in medicine, apparel, and fashion goods, particularly by those retailers with brick and click outlets, or critical repairable spare parts of equipment-intensive