Modelling unidirectional transshipments from a retail network to support a virtual store

We consider a multi-location inventory system in which demand at one of the locations can be met by local stock or by transshipment from any of the other locations. This situation arises, for example, in a retail company which has a branch network and a virtual store. Under the assumption of independent continuous review replenishment with fixed lead time at each location, we model the system as a semi-Markov decision process. Using decomposition, we develop an effective heuristic transshipment policy.