Sharing and lateral transshipment of inventory in a supply chain with expensive low-demand items

The emergence of carriers that deliver items to geographically dispersed de stinations quickly rand at a reasonable cost,: combined with the low cost o f sharing information through networked databases, has opened up new opport unities to better manage inventory. We investigate these benefits in the co ntext of a supply chain in which a manufacturer supplies;expensive, low-dem and items to vertically integrated or autonomous retailers via one central depot. The manufacturer's lead time is assumed to be due to the geographica l distance, from the market or a combination of low:volumes, high variety,l and inflexible production processes. We formulate and solve an appropriate mathematical model based on one-for-one inventory policies in which a reple nishment order is placed as soon as the customer withdraws an item. We find that sharing and transshipment of items often, but not always, reduces the overall costs of holding, shipping, and waiting for inventory. Unexpectedl y, these cost reductions are sometimes achieved through increasing overall inventory levels in the supply chain. Finally while sharing of inventory ty pically: benefits all the participants in decentralized supply chains, this is not necessarily the case-sharing can hurt the distributor or individual retailers, regardless of their relative power: in the supply chain.