The Multi-Location Transshipment Problem with Positive Replenishment Lead Times

Transshipments, monitored movements of material at the same echelon of a supply chain, represent an effective pooling mechanism. With a single exception, research on transshipments overlooks replenishment lead times. The only approach for two-location inventory systems with non-negligible lead times could not be generalized to a multi-location setting, and the proposed heuristic method cannot guarantee to provide optimal solutions. This paper uses simulation optimization by combining an LP/network flow formulation with infinitesimal perturbation analysis to examine the multi-location transshipment problem with positive replenishment lead times, and demonstrates the computation of the optimal base stock quantities through sample path optimization. From a methodological perspective, this paper deploys an elegant duality-based gradient computation method to improve computational efficiency. In test problems, our algorithm was also able to achieve better objective values than an existing algorithm.