Heuristics for solving an internet retailer’s dynamic transshipment problem

• We investigate transshipment strategies for online retailers with dynamic demand.
• We propose three convenient heuristic rules for online retailers’ transshipment problem.
• We identify a heuristic rule which is computationally simple and cost-effective.
• We develop a hybrid strategy that combines allocation planning and transshipment rule.

Throughout the world, electronic retailing has grown exponentially. In this study, we explore the transshipment strategies of a large online retailer with multiple distribution centers in a geographically dispersed network. We investigate transshipment strategies in a continuous review system with dynamic demand. The theoretical optimal transshipment schedule by a dynamic program is developed as a benchmark solution. Then, three computationally simple heuristic transshipment rules are proposed for practitioners’ decision making. Through comprehensive numerical evaluations, we recommend an acceptable heuristic rule that could closely approximate the same performance obtained under the theoretically optimal transshipment. We further demonstrate that a retailer can significantly reduce total fulfillment costs by combining an inventory allocation policy with an appropriate heuristic transshipment rule.