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ABSTRACT
One basic way for a firm to perform a particular task in a supply chain is to form strategic alliances with other companies. The alliances can be formed between suppliers and retailers, or among retailers. In this paper, we analyze a two-echelon, multi-retailer, continuous review inventory system in which coordination among retailers is allowed. The retailers are given the flexibility to transfer their inventory in situations where a retailer is stocked out and at least one of other retailers has surplus inventory, which is called emergency lateral transshipments. In addition, we assume that the transshipments are only allowed in one direction, i.e., we only consider unilateral transshipments. This assumption is reasonable under some conditions, such as the retailers have very different cost parameters. We design a heuristic rule for retailers to decide whether to transfer their stock or not, and provide an approximate technique to evaluate the transfer policy in this system. Finally, a simulation study is conducted to test the validity of this technique, and to analyze the impact of different parameters on the retailers' performances.