Journals Proceedings

Abstract

This paper considers a supply chain consisting of one manufacturer and multiple retailers. 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 study the impact of transshipment on supply chain members' performance. We show that the impacts of transshipment are different under fill rate based inventory decisions from under profit-maximization based inventory decisions. In particular, when the retailers have only one purchasing opportunity, transshipment always hurts the manufacturer because retailers order less with transshipment. Further, the transshipment hurts the manufacturer more whenever the value of the transshipment for the retailers is high. On the other hand, for an infinite horizon case when retailers have multiple ordering opportunities, the retailers' expected ordering quantities remain unchanged with transshipment; however, the manufacturer still benefits from transshipment because its demand becomes less variable with transshipment.