Risk Pooling with Transshipment Under
Fill-Rate Based Inventory Decisions
Jun Zhang
This
paper considers a supply chain consisting of one manufacturer and multiple
retailers who are identical except with different demands. The retailers can
use transshipment as a recourse action to satisfy their unmet demands, and they
base their inventory decisions on a fill rate constraint. We show that
transshipment among retailers may benefit the retailers even if transshipment
is not economically profitable ex post. Further,
retailers benefit more from transshipment when (i)
their demands are less correlated, (ii) more retailers participate in
transshipment, or (iii) the fraction of customers willing to accept
transshipped products is higher. The impact of transshipment on the
manufacturer's performance depends on problem environments. In particular, when
the retailers have only one purchasing opportunity, transshipment always hurts
the manufacturer because retailers order less with transshipment. For an infinite
horizon case when retailers have multiple ordering opportunities, the
retailers' expected ordering quantities remain unchanged with transshipment.
Further, if all customers are willing to accept transshipped goods, the
manufacturer also benefits from transshipment because its demand becomes less
variable with transshipment.