A pragmatic stochastic decision model for supporting goods trans-shipments in a supply chain environment

This paper develops a set of decision rules to assist wholesalers to decide whether it is more cost effective to trans-ship urgent outstanding retailer orders from other wholesalers, very fast but at a higher purchase cost, or to order from their suppliers. By considering the uncertainty in demand, it models the total cost encountered by wholesalers, including purchasing, backordering and holding costs in the inventory replenishment process. Unlike previous models that are complex, highly mathematical and difficult to apply, this model provides a pragmatic and less complex method adoptable by ordinary logistics managers and requires input data that are accessible from the previous transaction records of an organization. The application of the proposed decision rules are illustrated considering different scenarios of wholesaler–supplier combinations.

► We model the costs encountered by wholesalers in inventory replenishment.
► These costs include purchasing, backordering, and holding cost components.
► We develop decision rules for making cost-optimized decisions on lateral trans-shipments.
► Previous models are complex, highly mathematical and difficult to adopt.
► Our decision rules are simple and can be used with previous transaction records data.