Transshipment means transferring goods from a location with excess stock to satisfy the demand of a location with insufficient stock. We suggest an inventory model with transshipment for the case where firms stock two items and their inventory capacit...
Transshipment means transferring goods from a location with excess stock to satisfy the demand of a location with insufficient stock. We suggest an inventory model with transshipment for the case where firms stock two items and their inventory capacities are limited. To analyze the competitive situation between two independent firms, we adopt the game theory. Our main findings are the following: unlike the single item transshipment case where a firm’s inventory level goes down with transshipment, not all items’ inventory levels go down in a multi item transshipment case. For example, As the transshipment price goes down, the inventory level of item with higher contribution goes down, whereas the inventory level with lower contribution goes up. With this type of inventory level adjustment, overall profits for both participants go up with transshipment. Firms’ profits are maximized when the transshipment price is set at the level of purchasing price plus transportation cost.