Inventory control policy of preventive lateral transshipment between retailers in multi periods

Abstract

Purpose: Preventive lateral transshipment can respond to customers who will choose a substitute or to give up when the product is out of stock. Motivated by the common practice, a decision-making model of preventive lateral transshipment with multi selling periods is developed. The purpose of the paper is to explore the optimal preventive lateral transshipment policy with multi selling periods. Design/methodology/approach: With a discrete-time dynamic programming model, we take a dynamic programming approach and adopt backward induction to analyze two retailers' preventive lateral transshipment policy. Findings: The optimal preventive lateral transshipment policy is a threshold policy which depends on both the remaining selling periods and inventory level. The above properties ensure that two retailers can control inventory with preventive lateral transshipment. Practical implications: The retailer can adjust inventory via the threshold type policy. The simple decision rule which compares on-hand inventory level with the critical inventory level can be used to control inventory by preventive lateral transshipment. Originality/value: A discrete-time decision-making model of preventive lateral transshipment policy is formulated. This model takes consideration of multi selling periods, which is different from most existing researches on preventive lateral transshipment.