Multi-Location Inventory System with Lateral Transshipments and Emergency Orders

Inventory redistribution and emergency replenishment in supply chains have long been studied in various contexts. From our strategic perspective, both systems can be used alternatively to cope with product shortages in a supply chain, especially for situations where high shortage costs are involved. In this paper, we present an incorporated scheme of lateral transshipments and emergency orders in a multi-location inventory system. We focused on a complex distribution network consisting of a capacitated distribution center and multiple retailers. A mathematical model is formulated in order to determine optimal inventory policies of the integrated systems. Lastly, we proposed a solution methodology using a hybrid Genetic Algorithm to solve the integrated multi-location inventory problem.