Service differentiation through selective lateral transshipments |
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Authors: | EM Alvarez MC van der HeijdenIMH Vliegen WHM Zijm |
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Institution: | University of Twente, School of Management and Governance, P.O. Box 217, 7500 AE Enschede, The Netherlands |
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Abstract: | We consider a multi-item spare parts problem with multiple warehouses and two customer classes, where lateral transshipments are used as a differentiation tool. Specifically, premium requests that cannot be met from stock at their preferred warehouse may be satisfied from stock at other warehouses (so-called lateral transshipments). We first derive approximations for the mean waiting time per class in a single-item model with selective lateral transshipments. Next, we embed our method in a multi-item model minimizing the holding costs and costs of lateral and emergency shipments from upstream locations in the network. Compared to the option of using only selective emergency shipments for differentiation, the addition of selective lateral transshipments can lead to significant further cost savings (14% on average). |
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Keywords: | Inventory Service differentiation Lateral transshipments Spare parts |
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