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A two-item two-warehouse periodic review inventory model with transshipment

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Abstract

We study a two-item two-warehouse periodic review inventory model that allows transshipment between warehouses and emergency orders. The model helps to determine two decisions: (i) the order up to levels for the two items at the two warehouses, and (ii) whether to accept a transshipment request from the other warehouse. The acceptance of a transshipment request in a warehouse depends on the time until the next review epoch and the inventory level of the warehouse. We propose a search procedure, which is a combination of greedy heuristics and a Lagrangian relaxation method, to minimize the total operating cost of the system. Numerical experiments reveal that optimality can be achieved using the proposed procedure. The time threshold to accept a transshipment request in a warehouse increases with the emergency shipment cost. In addition, the more inventory available in the warehouse the more likely for a transshipment request to be accepted.

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Acknowledgements

The first author thanks the Ministry of Education of Singapore and Singapore Management University for the generous scholarship. The third author is supported by the Lee Kong Chian School of Business, Singapore Management University and the Neptune Orient Lines (NOL) Fellowship, Singapore.

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Authors and Affiliations

  1. Lee Kong Chian School of Business, Singapore Management University, Singapore, 178899, Singapore

    Koushik S. Ramakrishna, Moosa Sharafali & Yun Fong Lim

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  1. Koushik S. Ramakrishna
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  2. Moosa Sharafali
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  3. Yun Fong Lim
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Correspondence to Moosa Sharafali.

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Ramakrishna, K.S., Sharafali, M. & Lim, Y.F. A two-item two-warehouse periodic review inventory model with transshipment. Ann Oper Res 233, 365–381 (2015). https://doi.org/10.1007/s10479-013-1483-4

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  • DOI: https://doi.org/10.1007/s10479-013-1483-4

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