Optimizing Centralized Inventory Systems Using Lateral Transshipments

This study explores the optimization of centralized inventory systems through lateral transshipments, addressing supply chain disruptions caused by unpredictable demand. Lateral transshipments, which involve reallocating stock among retailers at the same distribution level, were investigated as a cost-effective and service-enhancing alternative to traditional emergency restocking methods. Using simulation and optimization techniques, we analyzed various transshipment policies, including Complete-Pooling and Partial-Pooling, across multiple scenarios. Our findings highlight that Partial-Pooling with an optimized threshold outperformed other policies by balancing collaboration and efficiency, reducing total costs, and improving service levels. The results underscore the importance of hybrid transshipment strategies, particularly for high-demand and cost-sensitive inventory systems. The research provides actionable insights for supply chain managers how tailored transshipment policies enhance centralized system overall supply chain resilience, profitability, and customer satisfaction.