Transshipment Strategy for Managing Supply Disruption Risk

Inventory transshipment among retailers is an effective strategy to manage supply disruption risks. The expected profit functions and the optimal ordering decisions of two newsvendors who adopt transshipment strategy to cope with upstream unreliability are derived. It is proved that transshipment strategy enhances the retailer’s profit,improves the service level for customers,and under special conditions improves the supplier’s profit as well. It is therefore claimed that transshipment strategy may achieve a Pareto improvement.