AN OPTIMAL POLICY FOR A 2 DEPOT INVENTORY PROBLEM WITH STOCK TRANSFER

Multiple depot inventory systems with stock transfer are used by many companies especially when demand is high relative to storage capacity. The key issues in such systems are how many of each item to hold at e ach depot and what to do if there is a demand for an item at a depot t hat has none of that item in stock. This study was motivated by the in ventory problem faced by a UK car part retailer that groups its depots into pairs. The company's policy for dealing with a demand at a depot that cannot be satisfied from local stock is to either transfer the i tem from the other depot in the group or to place an emergency order. The object of this paper is to characterise an optimal policy for this problem and to propose a method of calculating the parameters of such a policy.