Decentralized inventory planning with transshipments in a multi-project environment

Soylu Nazlı, Duygu
Many companies in project-based industries manage their inventories in a decentralized manner on a project-by-project basis. Even if one project has excess supply of a material, the other may have excess demand of it, which increase inventory costs of the company. These costs can be decreased if material transshipments between projects are allowed. In this study, motivated by the defense industry applications in Turkey, we investigate ordering decisions of two different agents, who make inventory decisions for two different projects, in a two-period problem. We study a transshipment mechanism where a project transfers its excess inventory at a unit transfer price to a project with excess demand. We prove the existence and uniqueness of the corresponding equilibrium between agents and characterize it. We also study two benchmark settings, decentralized setting without transfers and centralized setting, to discuss the benefits of allowing transfers. Numerical analyses show that agents achieve significantly more profits with transshipments compared to decentralized setting without transfers. We also show that the amount of benefits introduced by transshipments depend on the right selection of transfer prices.
Citation Formats
D. Soylu Nazlı, “Decentralized inventory planning with transshipments in a multi-project environment,” M.S. - Master of Science, Middle East Technical University, 2021.