Transshipment Mechanism Using EOQ
Date Issued
2007
Date
2007
Author(s)
Chang, Chih-Chao
DOI
zh-TW
Abstract
More often than not, a member in a supply chain(e.g. a retailer) manages its inventory based on the traditional EOQ model, or the min-max inventory policy, with simple modifications. However, since the lead time could be long, a member usually has to keep high safety stocks for so many merchandise items to meet the high service level requested by the customers. This study suggests differently that the member nearby in the same echelon should form a cluster to encourage the transshipment of stocks, so as to adjust every member’s inventory to the regular target level. Under this mechanism, the members with excess inventory are able to sell these surplus stocks, due to lower-than-expected demand, to those in short supply in the same cluster, and hence to reduce the carrying costs from keeping the excess inventory. On the other hand, the members in the same cluster running out of stocks also benefit by the timely supplies, which normally come faster than those from their suppliers, to serve and keep their customers.
The transshipment itself incurs additional costs. For the members with excess stocks, called “sellers”, to provide, the major cost incurred is the operation cost for the transshipment operation. Yet sellers also benefit from clearing up excess inventory, and by doing this, it leads to a lower carrying cost. Moreover, they are able to earn margins from the difference between their own purchase and selling prices. For the members requesting the transshipment, called “buyers”,, the costs include the communication / query cost, operation cost, the price difference and the transportation cost. However, buyers benefit from the orders they would have lost without those supplies, and hence revenue is increased by the transshipment.
This study constructed a mathematic model to find the optimal transshipment quantity for both parties and present the quantitative analysis to clarify the proper use of the transshipment mechanism. Because the mathematic model is too complicated to obtain a close-form solution, two search algorithms, BSA and GSA, were proposed in this study to find the optimal transshipment quantity based on the shape of the demand density functions. As results, the search algorithms provided the same optimal solution as the one found by using simulation model in 16 scenarios with basic EOQ model, 32 scenarios with non-instantaneous EOQ model, and 32 scenarios with quantity discount EOQ model. The results show that it is reasonable to adopt a transshipment mechanism to increase a member’s own net profit when facing abrupt demand, and even to benefit the cluster as a whole.
Subjects
轉運
群組
供應鏈水平整合
Transshipment
Cluster
Inventory Management
EOQ Model
Horizontal Supply Chain Management
Type
other
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