How to order and transship in multi-location inventory systems: The simulation optimization approach

The efficient control of multi-location inventory systems with lateral transshipments has become increasingly important. However, existing models are analytically solvable only under simplifying assumptions. There is a variety of heuristics to find approximate solutions, but interdependencies between ordering and transshipment decisions for continuous time are not addressed. Thus, we suggest using simulation optimization. In our paper, we describe a widely adaptable simulation model for mapping highly complex multi-location inventory systems with lateral transshipments. By applying this model to a special case from the literature and to some examples, we show its validity and generality.