Article ID: | iaor20032223 |
Country: | United States |
Volume: | 47 |
Issue: | 10 |
Start Page Number: | 1371 |
End Page Number: | 1383 |
Publication Date: | Oct 2001 |
Journal: | Management Science |
Authors: | Schmidt Charles P., Miller David M., Kukreja Anil |
This research shows that organizations with a number of ‘sister’ plants, warehouses, or other stocking points can profit from the concept of proactive use of transshipments as an element of their inventory control policy. For certain types of parts, employing transshipments can significantly reduce the total inventory needed throughout the entire collection of stocking points. The study is motivated by a real-life situation involving a large utility company having 29 power-generating plants in five Southeastern states where there are thousands of parts that are commonly used at multiple plants. At present, each plant operates independently and maintains enough stock to meet its own requirements. Transshipments take place between plants whenever there is an emergency requirement for a part, but no explicit consideration is given to this effect while deciding on stocking levels at different plants. In the case we examined, by setting stocking levels to explicitly take account of transshipments, total system cost could be reduced by about 70% over the company's decentralized policy. In general, this work considers a single-echelon,