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Optimal Solutions in the Multi-location Inventory System with Transshipments

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Journal of Mathematical Modelling and Algorithms

Abstract

We consider a single-period multi-location inventory system where inventory choices at each location are centrally coordinated. Transshipments are allowed as recourse actions in order to reduce the cost of shortage or surplus inventory after demands are realized. This problem has not been solved to optimality before for more than two locations with general cost parameters. In this paper we present a simple and intuitive model that enables us to characterize optimal inventory and transshipment policies for three and four locations as well. The insight gained from these analytical results leads us to examine the optimality conditions of a greedy transshipment policy. We show that this policy will be optimal for two and three locations. For the n location model we characterize the necessary and sufficient conditions on the cost structure for which the greedy transshipment policy will be optimal.

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Authors and Affiliations

  1. Department of Finance and Management Science, Norwegian School of Economics and Business Administration, Helleveien 30, N-5045, Bergen, Norway

    Lars Magne Nonås & Kurt Jörnsten

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  1. Lars Magne Nonås
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  2. Kurt Jörnsten
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Correspondence to Lars Magne Nonås.

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Nonås, L.M., Jörnsten, K. Optimal Solutions in the Multi-location Inventory System with Transshipments. J Math Model Algor 6, 47–75 (2007). https://doi.org/10.1007/s10852-006-9049-y

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  • DOI: https://doi.org/10.1007/s10852-006-9049-y

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