An index heuristic for transshipment decisions in multi-location inventory systems based on a pairwise decomposition

T. Archibald, D. Black, K. Glazebrook

Research output: Contribution to journalArticlepeer-review

Abstract

In multi-location inventory systems, transshipments are often used to improve customer service and reduce cost. Determining optimal transshipment policies for such systems involves a complex optimisation problem that is only tractable for systems with few locations. Consequently simple heuristic transshipment policies are often applied in practice. This paper develops an approximate solution method which applies decomposition to reduce a Markov decision process model of a multi-location inventory system into a number of models involving only two locations. The value functions from the subproblems are used to estimate the fair charge for the inventory provided in a transshipment. This estimate of the fair charge is used as the decision criterion in a heuristic transshipment policy for the multi-location system. A numerical study shows that the proposed heuristic can deliver considerable cost savings compared to the simple heuristics often used in practice.
Original languageEnglish
Pages (from-to)69-78
Number of pages10
JournalEuropean Journal of Operational Research
Volume192
Issue number1
DOIs
Publication statusPublished - 1 Jan 2009

Fingerprint

Dive into the research topics of 'An index heuristic for transshipment decisions in multi-location inventory systems based on a pairwise decomposition'. Together they form a unique fingerprint.

Cite this