A novel approach to find optimal transshipment rules in a two echelon distribution system

Abstract

Lateral transshipment is an effective means for improving customer service and reducing total system costs, especially when the distribution center is acting as a coordinator as well as permitting lateral transshipment in the system. In this study we propose nine transshipment rules and evaluate their performances under emergent and complete transshipment environments. We evaluate these transshipment rules through the two methods of simulation and experiment design, and verify whether these transshipment rules perform the same under the condition of a distribution system consisting of different numbers of retailers. The research result shows that: (1) The transshipment rules that perform the best are designed by considering the ability of retailers in terms of the time needed to transship. These rules are followed by those which are designed by considering the predicted ability of retailers in the end of a certain period. The transshipment rules which are designed according to the past ability certain period. The transshipment rules which are designed according to the past ability of retailers perform the worst. (2) No matter the system consists of 5, 10, or 20 retailers, the transshipment rules which are designed based on the ability of retailers at the time to transship always perform the best. This is valuable information in designing transshipment system.

Keywords and phrases:

• Two-echelon distribution system
• transshipment rules
• experiment design