Estimating customer service in a two-location continuous review inventory model with emergency transshipments

In this paper, an approximate analytical two-location inventory transshipment model is developed that combines the popular order-quantity, reorder-point (Q,R) continuous review ordering policy with a third parameter, the hold-back amount, which limits the level of outgoing transshipments. The degree to which transshipments improve both Type I (no-stockout probability) and Type II (fill rate) customer service levels can be calculated using the model. Simulation studies conducted to test the validity of the approximations in the analytical model indicate that it performs very well over a wide range of inputs.