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Int. J. Services Technology and Management, Vol. 7, Nos. 5/6, 2006
Lateral transshipment for managing excesses and shortages in a multilocation inventory system: a case study of Timex Watches Ltd. Pradip K. Bhaumik*
International Management Institute B-10, Qutab Institutional Area Tara Crescent, New Delhi 110 016, India Fax: +11 2686 7539 E-mail: firstname.lastname@example.org *Corresponding author
Business Systems Group, Timex Watches Limited B-190, Phase-II, NOIDA – 201 305, India Fax: +(11)95120 2562670 E-mail: email@example.com
Abstract: This paper describes a large watch manufacturer in India and a proposed system to reduce its cost and simultaneously improve its service level by planning lateral transshipments. Many authors have studied the multilocation inventory situations, under different demand and cost characteristics, and almost all of them have developed push systems developing optimum or good replenishment/transshipment policies. Yet pull systems may offer simpler and more practical joint replenishment/transshipment policies, particularly when practical considerations as faced by real companies are studied. The process map including the inputs and the outputs for the replenishment system is described, as well as the feedback mechanism to revise the system parameters. Keywords: transshipment; multilocation inventory; distribution chain; service level. Reference to this paper should be made as follows: Bhaumik, P.K. and Kataria, S. (2006) ‘Lateral transshipment for managing excesses and shortages in a multilocation inventory system: a case study of Timex Watches Ltd.’, Int. J. Services Technology and Management, Vol. 7, Nos. 5/6, pp.602–614. Biographical notes: Pradip K. Bhaumik is a B.Tech. in Mechanical Engineering from the Indian Institute of Technology, Delhi. He worked as a Trainer-Cum-Consultant with the National Productivity Council, New Delhi for eight years after his graduation. After completing his doctoral programme from the Indian Institute of Management, Ahmedabad he has been teaching at the International Management Institute, New Delhi in the area of Operations Management. He has been a Consultant to many Indian companies including MNCs and also a UNDP Consultant. His research interests include supply chain management, goal programming, game theory, regulation and impact assessment of government programmes and he has published in national and international journals. Copyright © 2006 Inderscience Enterprises Ltd.
Lateral transshipment for managing excesses and shortages Sachin Kataria is a B. (2003) – or those with multiple but largely identical suppliers – e. New Delhi (with a specialisation in systems) he has been working with Timex Watches Limited for the last four years as an Associate Consultant – Software. 2004. movement of a product among locations at the same echelon of a supply chain. Firms have recognised the large potential for service level improvements. One of the earliest studies on transshipment problems is that of Krishnan and Rao (1965). Archibald et al. Transshipment problems could be analysed along the following dimensions: • • • • • • Single-period or multiperiod Two-location or multilocation Two echelons or multiechelon Identical cost/demand characteristics at each location or different characteristics Fixed review period systems or constant review systems Push systems or pull systems.g. through greater coordination and better management of their supply chain.. 603 1 Introduction Innovative strategies are being used by business organisations in the area of logistics to achieve competitive advantages. Tagaras and Cohen (1992). Brisbane. Robinson (1990). in Computer Science from Rohilkhand University. Krishnan and Rao (1965). who used the single-period newsboy problem to develop order-up-to policies. Australia on 10–11 June 2004 and organized by the Queensland University of Technology.Tech. (1997) and Xu et al. cross-filling. The revision has benefited from the comments of two anonymous referees. Lateral transshipment (also referred to as pooling. In this paper. Robinson (1990) and . we describe and analyse a case study where a watch manufacturer coordinated among multilocation inventories through replenishment strategies that explicitly took into consideration transshipments.. India.g. one location may have a shortage due to insufficient stock while another has excess stock. Uttar Pradesh. stock transfer and redistribution) of products could be used in such situations to satisfy the shortage in one location with the surplus (or excess) from another location. as well as cost savings. Lateral transshipment represents one strategy for enhancing customer service while reducing costs in a multilocation inventory system. After completion of his MBA at the International Management Institute. It is possible that at some point in time.. Organisations typically have many service locations – e. dispersed customers. most authors have analysed transshipment situations involving either two retailers – e. In the literature. retail stores – spread throughout a wide geographical region to satisfy numerous. which was held at Brisbane. This is a revised version of a paper presented at the International Logistics and Supply Chain (ILSC) Conference. Robinson (1990) extended this to the multiperiod case.g. that is.
. and Herer et al. The background of the company – viz. which relates to the capability of supply chains to be lean and agile concurrently. Herer et al. taking into account the fixed and variable transshipment costs as well as information on orders en route to retailers. Minner et al. reduce the overall costs – sometimes by increasing overall inventory levels in the supply chain. Dada (1992) and Xu et al. assumed that transshipments occurred before demand was realised. whereas most others assumed that transshipments occurred after demand was realised but before it was satisfied. Axsäter (2003) developed a decision rule for lateral transshipments among local warehouses facing compound Poisson demand. if transshipment quantities can be decided after demand – or a good forecast of demand – is realised but before it is satisfied. each with demand having high seasonality as well as high uncertainty. and studied through simulation its effect when used repeatedly as a heuristic. like Karmarkar (1987) and Ballou and Burnetas (2000). Section 6 provides an analysis of the case study and presents conclusions. while the Carrying and Forwarding Agent (CFA) stock replenishment system. It may be possible to develop effective ‘pull’ systems.K. In this paper we present how the distribution chain is managed by a company having a large number of product variants. Although cost minimisation and service level maximisation are desirable objectives of both the supplier and the customer. but not always. such as Axsäter (1990). Given an order-up-to S replenishment policy. Grahovac and Chakravarty (2001) have found that in supply chains of expensive low-demand items. has recently been introduced. The periodic review systems could be modelled as newsboy problems using single-period modelling or could be optimised using dynamic programming in the multiperiod context. Kataria Dada (1992). they used an LP/network flow framework to develop an optimal transshipment policy and used simulation to decide the value of S. usually one can be achieved by trading it off with the other. The concept of leagility in supply chains. Rudi et al. (2003). (1998) looked at a situation where the locations were not all owned by one firm.604 P. most of the studies refer to designing good or optimal ‘push’ type inventory control policies under different demand and cost patterns. Only a few studies examined continuous review systems in the context of transshipments. sharing and transshipment of items often. joint profits were not maximised at the unique Nash equilibrium and that a coordinated transshipment policy could increase profitability. nor their inventory orders coordinated by any single agency or explicit mechanism. Some authors. (2001) considered multiple retailers with different cost structures and demand parameters. which also explores transshipment possibilities. is described in Section 5. They found that. Bhaumik and S. In the literature. (2003) developed decision rules for transshipment. (2002) have established how transshipments can be used to enhance both the agility and leanness of supply chains. After this Introduction. in general. The distribution chain of watches is elaborated in Section 4. Section 2 highlights the methodology used for this study. Timex Watches Limited – is described in Section 3.
as described in this paper. the company could not end any year making a profit after the financial year 1997–1998 (Kumarkaushalam.Lateral transshipment for managing excesses and shortages 605 2 Methodology Although many authors have studied multiechelon inventory systems and used lateral transshipment to achieve system-wide optimisation as summarised in the previous section. But Timex Watches suffered a setback due to the loss of the distribution network that it shared with Titan. . critical questioning and analysis of various sub-processes involved in managing the supply chain at Timex.e. and with such a large number of product variants. both Timex Corporation and Titan held a 29% stake in the Indian joint venture. The watch industry is known to have a large number of product variants and this is expected to add to the complexities of its supply chain. there is usually a lot of difference between a real system and its mathematical model. The proposed system detailed in this paper is the result of an intensive study of the existing supply chain with a view to improving its effectiveness and efficiency. discussions. when the issue is about managing a complex supply chain. The proposed design. 3 Background of the case A subsidiary of Timex Corporation of USA. as well as the regional office level. improve both the service level and the average system inventory. Timex Corporation is the third largest watch manufacturer in the world and sells over 13 million watches in more than 32 countries. processing and parameter review for later modifications. Timex is repositioning itself as an aspirational brand (Business Line. while Titan entered the lower segment with its Sonata brand. which is the largest watch producer in India. 1998). Quite often the mathematical model is a highly simplified version of the real system but capturing its essential characteristics.1 Timex Watches became a subsidiary of Timex Corporation after the breakup with Titan in 1998 (Miller. a Tata group company. With a single manufacturing facility and a market spreading the length and breadth of India. It suited us even more because one of the authors is also working at Timex. However. i.. Even financially. the supply chain of Timex appeared interesting for a detailed study. The choice of the company and the industry is also of importance. Timex initially concentrated on the low end of the watch market and the lower segment continues to be the major strength of Timex watches in India. 2003). It was established in 1992 as a joint venture between the Timex Corporation and Titan Industries Ltd. Timex has since bought out Tata’s stake in the company. It built on the then existing supply chain but added lateral transshipment and the consequent changes needed in data acquisition. evolved through a series of observations. Even then. it may be that one has to make major modifications while applying the results of theoretical analysis. Timex Watches Limited is the second largest watch manufacturer in India. The major objective of this paper is to study a real supply chain for a specific company and investigate the complexities that go beyond the usual assumptions made in theoretical studies.. 2001). Lateral transshipment was considered effective as well as feasible for taking care of shortages and excesses at the CFA level. provided a comprehensive process could be put in place to explore such possibilities in a systematic manner. Initially.
Timex is attempting to drive the value chain instead of volumes. the rates of local sales tax vary across different states and create many problems for manufacturers selling beyond the borders of the state of manufacture. offering variety to the customer to suit his/her exact need is very important. Sales tax rates vary between 5% and 20%. Watches are assembled here and the logistics function is also performed by the Dispatch Controller located here.K. 100 multibrand outlets and 5000 retail outlets. wherein Timex kiosks are being located in leading retailing stores (Timex Watches Limited. This facility is referred to as the Finished Goods Store (FGS) in the context of managing the Timex supply chain. The distribution chain from FGS to the CFAs is shown in Figure 1. The production of watches attracts manufacturing duties (central excise) varying from nil to 16% ad-valorem. a central sales tax of 10% is levied. The rationale of having CFAs. In case of an interstate sale to the final consumer. . The CFAs in turn supply to the retailers spread all over the country. revamping of manufacturing. Sales tax being a state subject. would be welcome in this journey towards profit. They are also subject to local sales tax at the first point of sale within a state. The ROs coordinate the physical distribution of watches in their respective regions. 2003). The organised watch market has come under severe pressure due to the increased availability of watches at low price points. The company is hopeful of reaching a black bottom line soon with the launching of new product lines. The management of the inventory of so many product variants at each of the 25 CFAs at minimum cost and the desired service level is the objective of effective supply chain management at Timex. Timex provides 550 to 600 styles of watches and the current product range spans price points ranging from Rs 350 to Rs 5000. Bhaumik and S. The retailers include 15 company exclusives. financial restructuring and strategic shifts (Krishnan. and is also trying to exploit the organised retail environment which is developing rapidly in metro cities (Timex Watches Limited. In addition to the traditional distribution channels. 220 direct sales dealers. which is an industrial township located on the outskirts of Delhi. Any cost savings. Kataria Although the market size for domestic watches is estimated to be about 30 million watches. without a reduction in customer service level.606 P. There are 25 CFAs located in large cities throughout India. In a product like watches. lies in the indirect tax structure of India. The CFAs are agents appointed by Timex to provide warehousing and physical distribution services. 2003). 2003). Four Regional Offices (ROs) prepare and execute the marketing plan in their respective regions under the overall supervision of the Marketing Department. 4 The distribution Chain Timex has its manufacturing facility at Noida. They also act as information hubs consolidating information from CFAs downstream. the size of the organised Indian watch industry is estimated to be about 11 million watches and has remained stagnant for more than a year. communicating with FGS and vice versa. which is a common practice in India. Timex has recently launched the concept of Club Timex under a ‘shop-in-shop’ concept.
no sales tax is chargeable. Branch transfers or transfers to the CFAs involve a central sales tax declaration form ‘F’ and the transfer is made on a consignment basis. The effect is that the watches are likely to become more expensive in states where they are brought in from other states. meaning thereby that whatever is sold. its sales proceeds will be remitted after the sale and whatever remains unsold will revert physically to the main or principal office. It is therefore seen that the product is likely to bear an additional burden of central sales tax at 10% (or 4% in case declaration in form ‘C’ is used) besides the local sales tax. or CFAs for short). The manufacturer is then enabled to transfer its manufactured stocks to its own branch or to its agent for sale. This dealer is next obliged to collect local sales tax at the rate applicable to its state when he sells these watches to the retailers. This transfer does not amount to a sale. manufacturing companies use either of two options: create a branch office in the destination state or appoint an agent to act on its behalf in that state (these agents are referred to as carrying and forwarding agents or C&F agents. To avoid this 4% concessional sales tax. The branch or CFA then sells goods within that state and levy local sales tax only.Lateral transshipment for managing excesses and shortages Figure 1 The distribution chain 607 FGS CFA BHU CFA CAL CFA DEL CFA JAI CFA BLR CFA COC CFA AMD CFA BHL CFA GAU CFA PAT CFA JMU CFA GOA CFA MUM CFA PUN CFA LUD CFA LUK CFA HYD CFA MDS RO EAST RO NORTH RO SOUTH RO WEST In case the sale is made to a dealer in a state different from the state in which the watch is produced. the dealer would pay a 10% percent sales tax and go on to collect local sales tax at the rate applicable to each state when he sells these watches further on. This dealer may pay a concessional central sales tax at 4% by furnishing a central sales tax declaration form ‘C’ to the selling entity for the purpose. Therefore. .
then chosen mode = surface. Timex decided to improve the part of the distribution supply chain between the FGS and the CFAs so as to achieve higher service levels and lower costs. If for a route. Each round of processing involves computing the current shortage/surplus of the variant at every CFA. which also lists the inputs and the outputs of the process. Processing then continues with lower priority demands and so on. However. When processing the CFA replenishments. but if a CFA raises a demand in the middle of a week. initial replenishments are processed only for high-priority CFA demands. modes of transport and associated costs for the routes are identified. The process map is shown in Figure 2. . This allows the controller to direct urgent shipments. it may be run again.608 P. This is computed as Surplus = Current Stock + Stock in Transit – Minimum Stock – Sales Forecast. Based on the acceptable transit times – which are not less than the least transit time for any mode – the system determines the optimal mode of transport for each route. The system will normally be run weekly. Bhaumik and S. lead times for transport and cost of transport for every CFA-CFA and FGS-CFA route. Packing and dispatch takes place only after all variants have been run through the system. the processing is done for only one variant at a time and is repeated for each variant being dispatched. it may be run again. The CFA replenishment system shall be installed at each of the four regional offices (North. if surface transit time were 6 days.K. air transit time = 2 days and surface transit time = 4 days. stock in transit. and at Timex FGS. The CFA replenishment system maintains a current record of variant-wise stock at each CFA. Specifically. This is necessary as the choice of courier and mode of shipping for a particular route are dependent on the amount of time the Dispatch Controller deems acceptable. This proposed system is described in the rest of this paper. A priority mechanism has also been built into the system to allow a CFA to get priority over others in the event that demand outstrips supply (the priority is set by the Dispatch Controller. under the responsibility of the respective Regional Manager. it was decided to design a system that would enable the Dispatch Controller to monitor and control inter-CFA stock transfers and CFA stock replenishments in a manner that minimises the total shipping costs and also ensures availability of stock. who reevaluates the priority on a continual basis to ensure that no CFA is at a permanent disadvantage). The system also maintains the shipping costs (or transportation costs) and the transportation time on each route for different couriers and different modes of transport. East. in case a CFA raises a demand with the regional office in the middle of a week. West and South) for intraregional transfers. As part of its ongoing effort towards improving its distribution network. The CFA replenishment system is run weekly and is driven by the sales forecasts for the upcoming week for each CFA and each variant. then chosen mode = air. Alternatively. All couriers. acceptable transit time = 5 days. Kataria 5 The CFA stock replenishment system The termination of Titan’s distribution network was a major setback for Timex and the company has been aggressively working towards establishing and strengthening its marketing and distribution network ever since. At a priority level. under the responsibility of the Dispatch Controller.
2 Gati will be assigned the route. • Minimum stock of each variant at each individual CFA. • Variant-wise sales forecast of each CFA for the current period.Lateral transshipment for managing excesses and shortages Figure 2 The CFA replenishment process map Inputs Dispatch controller CFA replenishment process 609 Outputs Feedback loop Inputs: • Lead times for each FGS–CFA route.1 Score for Courier Blue Dart = 11. As an example. quantity to be shipped source. Cost and lead time reports. with surface chosen as the mode of transport. destination. • Outputs: Dispatch plan detailing the variant. the choice of courier is made based on a weighted average score for each courier for each route – the score being a weighted average of transit time and transportation cost. inclusive of minimum costs) of each courier for shipping between every source-destination pair. The weights reflect the relative importance of transit time. on the route FGS–JMU. After each route has been assigned. • Acceptable lead times for each CFA–CFA route. • Opening stock of each variant at each CFA and at FGS. there are two couriers available: 1 2 Score for Courier Gati = 10. The output of the system will yield the quantities to be shipped along each route. A route is assigned to the courier with the least score among all others on that route. It will automatically suggest CFA–CFA shipments if they appear to be time and cost effective. • Priority of each CFA (set by the dispatch controller). • Shipping cost/kg (both air and surface. The demands and opening stocks (in numbers) of the variant are translated into kilogram terms to compute shipment costs. Frequency of air/surface shipments (variant/CFA-wise). the weighted average score of each route is entered into the transshipment model as a cost. as it is critical for shipments to arrive within the time frame prescribed. . • Weight of a variant when packed in its individual case. • Acceptable lead times for each FGS–CFA route. • Lead times for each CFA–CFA route. • • • Once the mode of transport has been determined. The system attempts to minimise the total score and thus the total cost by solving a transshipment problem. Shortage/surplus report of variants at CFAs over a period of time. By assigning weights. courier and and mode of shipping. one can ensure that a small change in transit time has a greater effect on the score. • Stock in transit for each CFA.
K. An instruction shall be sent to these CFAs (via e-mail. Such changes may be incorporated on a periodical basis – say once a year or whenever major changes take place in the transport industry. whenever a CFA receives an STM. destination. These also allow the dispatch controller to identify routes with abnormally high frequencies of air shipments. fax. Kataria At any time. It is clear from the table that the transshipment problem needs to be solved many times for each weekly processing – once for every variant at each priority level. This information is entered into the system and the dispatch plan is generated. Such routes could then be studied closely and a cheaper means of transport may be suggested. The CFA replenishment system generates output which is immediately useful as it gives the dispatch plan detailing the variant. The controller may then use the data to revise the minimum stock levels of variants at the CFA. The shortage/surplus reports of variants at CFAs over a period of time helps to identify CFAs that regularly have shortages/surpluses. FGS (which has a similar system installed) would in turn poll each of the other regional offices and ask for the excess stock status of Variant A.). source. Bhaumik and S. These reports also help to identify CFAs who overestimate or underestimate their sales forecast regularly. The variant/CFA-wise reports giving frequencies of air/surface shipments may point to an inefficient sales forecasting system. The controller at the regional office shall enter the required parameters into the CFA replenishment system. Similarly. It is also expected that the minimum (or safety) stock levels at each CFA would be reduced after transshipments are integrated into the CFA-replenishment system. it immediately informs the regional office (via e-mail. which automatically reallocates excess stock of that variant from one or more CFAs within the same region to service this shortage. etc. if CFA(X) in a region is experiencing a shortage of Variant A. and the process continues as in the previous case. etc. a copy is sent to the regional office. e-mail. . It also prepares reports which are useful for revising the system parameters.).610 P. a confirmation is sent to the issuing CFA and a copy is sent to the regional office. If no CFA in that region is carrying excess stock of Variant A or if the total excess stock with CFAs in the region is less than the demand. the regional office raises a request for that variant at Timex FGS (via. The instruction for this transfer is sent to the concerned regional office(s). The various steps that need to be executed along with their periodicity and sequence are summarised in Table 1. quantity to be shipped.) to generate Stock Transfer Memos (STMs) and dispatch the stock to CFA(X) immediately via the mode and courier suggested by the system. fax. The cost and lead time reports allow the controller to keep track of these parameters and update the cost and transit time figures used in the CFA replenishment system. courier and mode of shipping. they forward it to the respective CFA(s). fax. Whenever a CFA generates an STM. etc.
destination. modes of transport and costs are identified Determines mode of transport based on acceptable transit time Determines choice of courier based on weighted average score Converts demands and opening stocks (in numbers) into kilograms Solves the corresponding transshipment problem Repeats steps 7 – 12 for other variants till all variants are covered Repeats steps 5 – 13 for other priority levels till all priority levels are covered Prepares Dispatch plan for each CFA detailing for each variant – quantity to be shipped. source.Lateral transshipment for managing excesses and shortages Table 1 Number 1 2 3 4 5 Activities involved in the CFA replenishment process Periodicity Weekly Weekly Weekly Weekly Weekly High priority High priority High priority High priority High priority High priority High priority High priority Lower priority Variant 1 Variant 1 Variant 1 Variant 1 Variant 1 Variant 1 Variant 2 Priority Variant Description of activities 611 CFAs raise weekly demand for each variant and forward this to RO RO forwards variant-wise demand for each CFA to the dispatch controller Dispatch controller sets priority level to CFAs and variants Dispatch controller runs the CFA Stock Replenishment System (CFASRS) CFASRS plans the replenishment for high priority demands variant-wise first for Variant 1 CFASRS computes current shortage/surplus of variant at every CFA All couriers. If no CFA in that region is carrying excess stock of that variant or if the total excess stock with CFAs in the region is less than the demand. courier and mode of shipping Any CFA experiencing a shortage of any variant informs the regional office. 6 7 8 9 10 11 12 13 14 Weekly Weekly Weekly Weekly Weekly Weekly Weekly Weekly Weekly 15 At any time in the middle of the week 16 At any time in the middle of the week . the regional office raises a request for that variant at Timex FGS. which runs the CFA stock replenishment system to reallocate excess stock of that variant from one or more CFAs within the same region to service this shortage. which runs the CFA replenishment system to prepare a dispatch plan.
at the RO or CFA level. etc. (1998). The performance of the CFA replenishment system is therefore dependent on good variant-wise forecast for each CFA. it may be run centrally at the FGS level and the CFAs and ROs advised about the dispatch plans from FGS. in a decentralised manner for middle-of-the-week replenishments. and the finished goods inventory at FGS represents the push-pull frontier. the CFA replenishment system may yield suboptimal solutions. Kataria Activities involved in the CFA replenishment process (continued) Periodicity While reviewing the system Priority Variant Description of activities Review minimum stock levels of variants at CFAs that constantly have shortages/surpluses. promotions and discounts.612 Table 1 Number 17 P. but this may be a better approach for practical reasons. as well as to explore cheaper means of transport. Monitor cost and lead time reports to update the cost and transit time figures used in the CFA stock replenishment system.K. wherein the pull is exercised not by the actual demand but by the weekly forecast of demand at each CFA. at a future date to derive greater benefits from optimising the multilocation inventory system. At Timex. Similarly. In fact. it may be possible to integrate the retailers as well. . The replenishment of CFAs in Timex Watches is designed as a pull system. It is possible that in such cases joint profits may not be maximised if left to individual CFAs and as mentioned by Rudi et al. and after sufficient experience and confidence is gained on using the CFA replenishment system. competitive responses. who are separate entities. Bhaumik and S. either centrally or locally. Identify CFAs who regularly overestimate or underestimate demand in their forecasts and take corrective action Identify routes with abnormally high frequencies of air shipments to improve the sales forecasting at these CFAs. different from the manufacturing and selling firm (Timex). The production plan for watches and the corresponding procurement plan for components and raw materials from suppliers is driven by an MRP. the problem is still very complex because of the large number of variants. which prepares the production and procurement plan based on forecasts. 18 While reviewing the system While reviewing the system While reviewing the system 19 20 6 Conclusion At Timex Watches. a coordinated transshipment policy may increase profitability. such coordination is not done centrally but at the level of the Regional Offices (ROs). Although the number of CFAs is not very large. Run this way. it is expected that the system-wide minimum stock levels would decrease after transshipments are integrated into the CFA stock replenishment system. the local inventories are managed by the CFAs. the complete supply chain at Timex is a push-pull system. which are revised every month – based on current sales.
Vol. pp. (2000) ‘Planning virtual inventories’.E. To be specific. useful conclusions. If there is a system-wide shortage. the system may actually result in higher costs through higher transshipments. As reported in this paper. Management Science. 49. 42. 2. and if the availability of lateral transshipment were to result in less careful demand forecasts by the CFAs. No. Sassen. the transporter is also chosen by the system on each of the routes based on performance indicators of all the transporters on the dimensions of transit time and cost. Ballou. An adequate reward/punishment system may have to be designed to discourage such tendencies among CFAs. and Thomas. Axsäter. even though there are other CFAs having shortages. R. Vol. The system also has a way of assigning different priorities to different CFAs. It should be kept in mind that transshipments are costlier than direct supply and are effective only when used as mechanisms to take care of uncertainty in demand. the transshipment problem has been analysed as a single-period. Timex has also been facing an unstable business environment while the proposed system was being developed. and Burnetas. fixed review period. 11.H. Case Western Reserve University.W. The system developed addresses the excesses/shortages only at the CFA level. and this feature becomes important especially when there is a system-wide shortage in some variants. Shortly after the launch of the proposed system. (2003) ‘A new decision rule for lateral transshipments in inventory systems’. The integration of CFAs in the management of a multilocation inventory system. OH. L. through the CFA replenishment and stock transfer system. 36. 9. the CFAs having excess stock and advised stock transfer may delay the release of stock. Department of Operations. Vol. S. no reallocation is explored in CFAs having no excess/shortage. two-echelon. further implementation was halted and kept in abeyance until the overall financial situation improved. pp. A.Lateral transshipment for managing excesses and shortages 613 The transportation cost from FGS to a CFA. Management Science. If this is not so. S.. (1990) ‘Modelling emergency lateral transshipments in inventory systems’. as well as the transshipment cost between any two CFAs. Cleveland. is also computed by the system based on the chosen mode of transport. pp.1168–1179.N. it does not attempt any reallocation of the existing stock other than the identified excesses. It is interesting to note that simulation with a wide choice of model parameters has led Tagaras (1999) to some interesting and practical. Since the lateral transsshipments are planned at the regional/national level. No.1329–1338. The type of transshipment policy was not found to affect the system’s performance significantly. References Archibald. S.C. multilocation. It was found preferable to form ‘balanced’ pooling groups consisting of locations having similar demand. 43.173–183. Axsäter. therefore has the potential to yield significant benefits. Similarly. Technical Memorandum No. T. (1997) ‘An optimal policy for a two-depot inventory problem with stock transfer’. Weatherhead School of Management. No. At Timex. The benefits of risk pooling through transshipment were found to be substantial and to increase with the number of pooled locations.A. pull system with each location having its own demand characteristics. The whole system as described here is based on a critical assumption that the demand forecasts are realistic. Management Science. The system therefore tries to minimise the cost subject to satisfying the time constraints in meeting the deliveries. .
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