Inventory Cost Optimisation through Lateral Transshipment

Ever increasing market competition forces businesses to be cost conscious and responsive to the changing needs of the market. For wholesalers, the common approach of maintaining a  low inventory level, sufficient simply to fulfil immediate orders is driven by cost minimisation objectives. However, a low inventory level is  accompanied by a higher risk of stock outages potentially creating a situation where minimum customer service levels are breached leading to loss of sales and dissatisfied customers. Manufacturers and wholesalers can increase the flexibility in their inventory systems by adopting a mix of strategies including emergency lateral trans-shipment from other wholesalers at a higher cost while simultaneously backordering from their usual suppliers to meet the stochastic demand. Decision Rules that support the required decision-making process have a practical value for inventory management practitioners.

Research conducted by Dr Henry Lau, Dr Dilupa Nakandala and Dr Paul Shum from The School of Business presents 'The Manager's Roadmap' outlining five decision rules assisting practitioners on lateral transshipment related decisions including whether it is more cost effective to laterally transship urgent orders and if lateral transshipment is opted then what should be the optimum value for trans-shipment size and how would the preferred wholesaler and suppliers be selected.  By following the proposed step-by-step process, logistics practitioners will be able to make informed decisions in a systematic way  to optimise their inventory management systems. In another study, a decision method has been developed for adopting  extra quantity of lateral trans-shipment as a preventive approach before an inventory shortage emerges. (Full Report: A Manager's Roadmap Guide for Lateral Trans-Shipment in Supply Chain Inventory Management PDF, 2556.14 KB)