An inventory model with returns and lateral transshipments

Abstract

In this paper, we propose a single-item inventory model with returns. The model allows lateral transshipment of returns from one inventory system to another. Each inventory system is under continuous review and an (r, Q) policy is employed as the inventory control. An approximated closed-form solution of the system steady-state probability distribution is derived when Q is large. The approximated inventory cost and replenishment cost can be written in terms of this distribution. We show that the rejection rate of returns is reduced significantly when transshipment of returns is allowed between the inventory systems.

Keywords:

• inventory model
• returns
• lateral transshipment
• reverse logistics
• steady-state probability distribution

Acknowledgements

The authors thank the three anonymous referees for their helpful comments, constructive suggestions and corrections.

Research supported in part by Hung Hing Ying Physical Sciences Research Fund, RGC Grant No. HKU 7126/02P and HKU CRCG Grant Nos. 10203919, 10204436.