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.