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Open AccessArticle

Application of Lateral Transshipment in Cost Reduction of Decentralized Systems

by 1, 1, 2, 3 and 4,*
1
School of Business Administration, Southwestern University of Finance and Economics, Chengdu 610074, China
2
Marilyn Davies College of Business, University of Houston-Downtown, Houston, TX 77002, USA
3
Mays Business School, Texas A & M University, College Station, TX 77843, USA
4
LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(12), 5081; https://doi.org/10.3390/su12125081
Received: 29 April 2020 / Revised: 10 June 2020 / Accepted: 11 June 2020 / Published: 22 June 2020
COVID-19 has exposed the global supply chains to great vulnerability. In such extreme circumstances, product availability becomes a primary concern. This paper studies a basic inventory management strategy—lateral transshipment—under decentralized systems, which may play an important role in dealing with stockouts during unexpected crises. Lateral transshipments not only react quickly to stockout, but are also environmentally friendly due to the significant reduction of production and transportation pollution. This paper studies optimal lateral transshipment and replenishment decisions under a decentralized setting. We construct a multi-stage stochastic model that captures demand uncertainty and customer switching behavior. We demonstrate that, similar to the centralized setting, the optimal transshipment decision follows a double-threshold structure. The optimal replenishment quantities are determined under two pricing mechanisms—individual mechanism (IP) and negotiated mechanism (NP). Numerical examples are provided to demonstrate the impact of lateral transshipment on supply chain cost reduction. View Full-Text
Keywords: supply chain management; lateral transshipment; sustainability; random switching supply chain management; lateral transshipment; sustainability; random switching
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MDPI and ACS Style

Liao, Y.; Li, J.; Hu, X.; Li, Y.; Shen, W. Application of Lateral Transshipment in Cost Reduction of Decentralized Systems. Sustainability 2020, 12, 5081. https://doi.org/10.3390/su12125081

AMA Style

Liao Y, Li J, Hu X, Li Y, Shen W. Application of Lateral Transshipment in Cost Reduction of Decentralized Systems. Sustainability. 2020; 12(12):5081. https://doi.org/10.3390/su12125081

Chicago/Turabian Style

Liao, Yi; Li, Jun; Hu, Xinxin; Li, Ying; Shen, Wenjing. 2020. "Application of Lateral Transshipment in Cost Reduction of Decentralized Systems" Sustainability 12, no. 12: 5081. https://doi.org/10.3390/su12125081

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