A two-item two-warehouse periodic review inventory model with transshipment
This thesis considers a two-item two-warehouse periodic review inventory model that allows transshipment between warehouses. Transshipment decision between warehouses is dependent on the time to the next order and the state of inventory in the other warehouse when a stock out occurs in a warehouse. The objective function considered is the total operating cost which comprises the variable ordering costs, the holding costs at the warehouses, the costs of transshipment between warehouses and the cost of emergency orders if transshipment is not possible. An innite horizon dynamic programming model is used to develop the objective function. As the resulting optimization problem is a non-linear integer programming problem, we propose a heuristic to solve the problem. The proposed heuristic is a combination of Greedy heuristics and Lagrangian relaxation methods. The advantage of the Lagrangian method is its ability to provide a test for the quality of the solution. A series of numerical experiments performed not only illustrates the method proposed but also shows that optimality can be achieved using the proposed heuristic. Further, the method also provides the optimal instants when emergency orders will be preferred over transshipment.