Capacitated production control with virtual lateral transshipments

Document Type

Article

Publication Date

11-1-2007

Abstract

We study the optimal control of a firm with two capacitated manufacturing plants situated in two distinct geographical regions. Demands from each region are mostly satisfied by the local plant. However, if necessary, some of the newly arrived demands can be designated to be served by the other, more remote, plant. The sources of the above virtual lateral transshipments, unlike the ones involved in the real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment processes. We develop results about the simultaneous preservation of supermodularity and diagonal dominances of the cost functions and then use these results to derive structural results for the optimal policies. Specifically, to perform optimally, we find that each plant should adopt a modified base-stock policy in observance of its own capacity, while the base level should mildly decrease in the other plant's starting inventory level. Our computational results illustrate the benefits realizable by using transshipment. © 2007 INFORMS.

Identifier

38549119860 (Scopus)

Publication Title

Operations Research

External Full Text Location

https://doi.org/10.1287/opre.1070.0410

e-ISSN

15265463

ISSN

0030364X

First Page

1104

Last Page

1119

Issue

6

Volume

55

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