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An index heuristic for transshipment decisions in multi-location inventory systems based on a pairwise decomposition

Archibald, T W and Black, D and Glazebrook, K D (2009) An index heuristic for transshipment decisions in multi-location inventory systems based on a pairwise decomposition. European Journal of Operational Research, 192. pp. 69-78. ISSN 0377-2217

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    Abstract

    In multi-location inventory systems, transshipments are often used to improve customer service and reduce cost. Determining optimal transshipment policies for such systems involves a complex optimisation problem that is only tractable for systems with few locations. Consequently simple heuristic transshipment policies are often applied in practice. This paper develops an approximate solution method which applies decomposition to reduce a Markov decision process model of a multi-location inventory system into a number of models involving only two locations. The value functions from the subproblems are used to estimate the fair charge for the inventory provided in a transshipment. This estimate of the fair charge is used as the decision criterion in a heuristic transshipment policy for the multi-location system. A numerical study shows that the proposed heuristic can deliver considerable cost savings compared to the simple heuristics often used in practice. (C) 2007 Elsevier B.V. All rights reserved.

    Item Type: Article
    Journal or Publication Title: European Journal of Operational Research
    Subjects:
    Departments: Lancaster University Management School > Management Science
    ID Code: 44978
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 19:24
    Refereed?: Yes
    Published?: Published
    Last Modified: 09 Apr 2014 22:27
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/44978

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