An inventory model with unidirectional lateral transshipments

This paper deals with a continuous review inventory system with Poisson demand, in which lateral transshipments are allowed. In case of a shortage at a location, another location acts as a supplier, if it is possible. A common assumption in earlier papers is that transshipments are allowed between all locations. This network configuration may, however, not be the best choice for many reasons. One such reason is that it may be difficult to establish contracts between locations regarding the design of the transshipment policy. Another reason is that a system with many transshipment links is much more complex than a system with few transshipment links. In this paper, we study a system where transshipments are allowed only in one direction. This may be a reasonable policy if the locations have very different backorder/lost sales costs. Our approach is relatively simple and fast, and works well in most cases.