An integrated approach for the operations of distribution and lateral
transshipment for seasonal products - A case study in household product
industry

Ming-Jong Yao; James T. Lin; Chen-Hao Yang

doi:10.3934/jimo.2011.7.401

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April 2011, 7(2): 401-424. doi: 10.3934/jimo.2011.7.401

An integrated approach for the operations of distribution and lateral transshipment for seasonal products - A case study in household product industry

Ming-Jong Yao ^1, , James T. Lin ^2, and Chen-Hao Yang ^2,

1.	Department of Transportation Technology and Management, National Chiao Tung University, Hsinchu, Taiwan
2.	Department of Industrial Engineering and Engineering Management, National Tsing Hua University, Hsinchu, Taiwan, Taiwan

Received November 2009 Revised January 2011 Published April 2011

Abstract
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The household product industry often suffers from problems of high operational costs and/or lost sales from selling seasonal products since managers in different divisions/stages of the supply chain make their decisions independently. We are therefore motivated to propose an approach that integrates the operations in the three stages of a supply chain for the management of seasonal products. The goal of this study is to minimize the total costs incurred for the seasonal products in the whole selling period. In the first stage, we employ a newsvendor model to determine the optimal one-time-only order quantities of the seasonal products. Then, we utilize a clustering analysis in the second stage to categorize seasonal products into groups, and establish an optimal replenishment policy for the products in the same group. Finally, the third stage starts when the warehouse runs out of its inventory. We formulate a mathematical model to determine the optimal transshipment quantities among all of the retailers to minimize the expected total costs incurred for the rest of the selling period. Taking a household product company in Taiwan as our case study, we demonstrate the implementation of the proposed (integrated) approach. Based on the real-world data of 17 seasonal products, we show that our integrated approach significantly outperforms the company's current approach. Therefore, our integrated approach may serve as an effective decision support tool for the distribution and lateral transshipment of seasonal products in the household product industry.

Keywords: lateral transshipment, seasonal products, Distribution, supply chain, mathematical model..

Mathematics Subject Classification: Primary: 90B06; Secondary: 90B0.

Citation: Ming-Jong Yao, James T. Lin, Chen-Hao Yang. An integrated approach for the operations of distribution and lateral transshipment for seasonal products - A case study in household product industry. Journal of Industrial & Management Optimization, 2011, 7 (2) : 401-424. doi: 10.3934/jimo.2011.7.401

References:

[1]	L. P. Bertrand and J. H. Bookbinder, Stock redistribution in two-echelon logistics systems,, Journal of the Operational Research Society, 49 (1998), 966. Google Scholar
[2]	G. P. Cachon and M. A. Lariviere, Supply chain coordination with revenue-sharing contracts: Strengths and limitations,, Management Science, 51 (2005), 30. doi: 10.1287/mnsc.1040.0215. Google Scholar
[3]	J. Chen and L. Xu, Coordination of the supply chain of seasonal products,, IEEE Transactions on Systems, 31 (2001), 524. doi: 10.1109/3468.983410. Google Scholar
[4]	W-K. Ching, W. O. Yuen and A. W. Loh, An inventory model with returns and lateral transshipments,, Journal of the Operational Research Society, 54 (2003), 636. doi: 10.1057/palgrave.jors.2601521. Google Scholar
[5]	M. Fisher, K. Rajaram and A. Raman, Optimizing Inventory Replenishment of Retail Fashion Products,, Manufacturing and Service Operations Management, 3 (2001), 230. doi: 10.1287/msom.3.3.230.9889. Google Scholar
[6]	G. Gallego and I. Moon, The distribution free newsboy problem: review and extensions,, The Journal of the Operational Research Society, 44 (1993), 825. Google Scholar
[7]	J. Grahovac and A. Chakravarty, Sharing and lateral transshipment of inventory in a supply chain with expensive low-demand items,, Management Science, 47 (2001), 579. doi: 10.1287/mnsc.47.4.579.9826. Google Scholar
[8]	Y. Herer and A. Rashit, Lateral stock transshipments in a two-location inventory system with fixed and joint replenishment costs,, Naval Research Logistics, 46 (1999), 525. doi: 10.1002/(SICI)1520-6750(199908)46:5<525::AID-NAV5>3.0.CO;2-E. Google Scholar
[9]	D. S. Johnson, C. R. Aragon, L. A. McGeoch and C. Schevon, Optimization by simulated annealing: an experimental evaluation; Part I, graph partitioning,, Operations Research, 37 (1989), 865. doi: 10.1287/opre.37.6.865. Google Scholar
[10]	M. Karakul, Joint pricing and procurement of fashion products in the existence of clearance markets,, International Journal of Production Economics, 114 (2008), 487. doi: 10.1016/j.ijpe.2007.03.026. Google Scholar
[11]	S. Kirkpatrick, C. D. Gelatt and M. P. Vecchi, Optimization by simulated annealing,, Science, 200 (1983), 671. doi: 10.1126/science.220.4598.671. Google Scholar
[12]	H. S. Lau and A. H. L. Lau, Some results on implementing a multi-item multi-constraint single-period inventory model,, International Journal of Production Economics, 48 (1997), 121. doi: 10.1016/S0925-5273(97)82104-4. Google Scholar
[13]	Y. H. Lee, J. W. Jung and Y. S. Jeon, An effective lateral transshipment policy to improve service level in the supply chain,, International Journal of Production Economics, 106 (2007), 115. doi: 10.1016/j.ijpe.2006.05.007. Google Scholar
[14]	B. K. Lee, K. H. Kang and Y. H. Lee, Decomposition heuristic to minimize total cost in a multi-level supply chain network,, Computers and Industrial Engineering, 54 (2008), 945. doi: 10.1016/j.cie.2007.11.005. Google Scholar
[15]	F. C. Lee and M. J. Yao, On the joint replenishment problem under power-of-two policy,, Computers and Operations Research, 30 (2003), 1319. doi: 10.1016/S0305-0548(02)00073-4. Google Scholar
[16]	A. J. Martin, "DRP: Distribution Resource Planning,", John Wiley & Sons, (1995). Google Scholar
[17]	I. Moon and G. Gallego, Distribution free procedures for some inventory models,, Journal of the Operational Research Society, 45 (1994), 651. Google Scholar
[18]	I. Moon and E. Silver, Multi-item newsvendor problem with a budget constraint and fixed ordering costs,, Journal of the Operational Research Society, 51 (2000), 602. Google Scholar
[19]	S. Nahmias, "Production and Operations Analysis,", $4^{th}$ ed., (2001). Google Scholar
[20]	F. Olsson, Optimal policies for inventory systems with lateral transshipments,, International Journal of Production Economics, 118 (2009), 175. doi: 10.1016/j.ijpe.2008.08.021. Google Scholar
[21]	E. L. Porteus, Numerical comparisons of inventory policies for periodic review systems,, Operations Research, 33 (1985), 134. doi: 10.1287/opre.33.1.134. Google Scholar
[22]	G. Punj and D. W. Stewart, Cluster Analysis in Marketing Research: Review and Suggestions for Application,, Journal of Marketing Research, 20 (1983), 134. doi: 10.2307/3151680. Google Scholar
[23]	R. O. Roundy, 98%-effective integer-ratio lot-sizing for one-warehouse multi-retailer systems,, Management Science, 3 (1985), 1416. doi: 10.1287/mnsc.31.11.1416. Google Scholar
[24]	H. Scarf, A min-max solution of an inventory problem,, in, (1958), 201. Google Scholar
[25]	L. B. Schwarz, A simple continuous review deterministic one-warehouse n-retailer inventory problem,, Management Science, 19 (1973), 555. doi: 10.1287/mnsc.19.5.555. Google Scholar
[26]	K. Shang and J. S. Song, Newsvendor bounds and heuristic for optimal policies in serial supply chains,, Management Science, 49 (2003), 618. doi: 10.1287/mnsc.49.5.618.15147. Google Scholar
[27]	S. Sharma, "Applied Multivariate Techniques,", John Wiley, (1995). Google Scholar
[28]	E. A. Silver, D. F. Pyke and R. Peterson, "Inventory Management and Production Planning and Scheduling,", John Wiley & Sons, (1998). Google Scholar
[29]	D. Simchi-Levi, P. Kaminsky and E. Simchi-Levi, "Designing & Managing the Supply Chain,", McGraw-Hill, (2003). Google Scholar
[30]	W. J. Stevenson, "Operation Management,", McGraw-Hill, (2002). Google Scholar
[31]	C. S. Tang and R. Yin, Responsive pricing under supply uncertainty,, European Journal of Operational Research, 182 (2007), 239. doi: 10.1016/j.ejor.2006.07.011. Google Scholar
[32]	S. Viswanathan, A new optimal algorithm for the joint replenishment problem,, Journal of the Operational Research Society, 47 (1996), 936. Google Scholar
[33]	S. Viswanathan and K. Mathur, Integrating routing and inventory decisions in one-warehouse multiretailer multiproduct distribution systems,, Management Science, 43 (1997), 294. doi: 10.1287/mnsc.43.3.294. Google Scholar
[34]	J. H. Ward, Hierarchical grouping to optimise an objective function,, Journal of the American Statistic Association, 58 (1963), 236. doi: 10.2307/2282967. Google Scholar
[35]	Z. Weng, Coordinating order quantities between the manufacturer and the buyer: A generalized newsvendor model,, European Journal of Operational Research, 156 (2004), 148. doi: 10.1016/S0377-2217(03)00003-1. Google Scholar
[36]	R. E. Wildeman, J. B. G. Frenk and R. Dekker, An efficient optimal solution method for the joint replenishment problem,, European Journal of Operational Research, 99 (1997), 433. doi: 10.1016/S0377-2217(96)00072-0. Google Scholar
[37]	M. J. Yao and Y. C. Wang, Theoretical analysis and a search procedure for the joint replenishment problem with deteriorating products,, Journal of Industrial and Management Optimization, 1 (2005), 359. Google Scholar
[38]	M. J. Yao and Y. C. Wang, A new algorithm for one-warehouse multi-retailer systems under stationary-nested policy,, Optimization Methods & Software, 21 (2006), 41. doi: 10.1080/10556780512331318029. Google Scholar

show all references

References:

[1]	L. P. Bertrand and J. H. Bookbinder, Stock redistribution in two-echelon logistics systems,, Journal of the Operational Research Society, 49 (1998), 966. Google Scholar
[2]	G. P. Cachon and M. A. Lariviere, Supply chain coordination with revenue-sharing contracts: Strengths and limitations,, Management Science, 51 (2005), 30. doi: 10.1287/mnsc.1040.0215. Google Scholar
[3]	J. Chen and L. Xu, Coordination of the supply chain of seasonal products,, IEEE Transactions on Systems, 31 (2001), 524. doi: 10.1109/3468.983410. Google Scholar
[4]	W-K. Ching, W. O. Yuen and A. W. Loh, An inventory model with returns and lateral transshipments,, Journal of the Operational Research Society, 54 (2003), 636. doi: 10.1057/palgrave.jors.2601521. Google Scholar
[5]	M. Fisher, K. Rajaram and A. Raman, Optimizing Inventory Replenishment of Retail Fashion Products,, Manufacturing and Service Operations Management, 3 (2001), 230. doi: 10.1287/msom.3.3.230.9889. Google Scholar
[6]	G. Gallego and I. Moon, The distribution free newsboy problem: review and extensions,, The Journal of the Operational Research Society, 44 (1993), 825. Google Scholar
[7]	J. Grahovac and A. Chakravarty, Sharing and lateral transshipment of inventory in a supply chain with expensive low-demand items,, Management Science, 47 (2001), 579. doi: 10.1287/mnsc.47.4.579.9826. Google Scholar
[8]	Y. Herer and A. Rashit, Lateral stock transshipments in a two-location inventory system with fixed and joint replenishment costs,, Naval Research Logistics, 46 (1999), 525. doi: 10.1002/(SICI)1520-6750(199908)46:5<525::AID-NAV5>3.0.CO;2-E. Google Scholar
[9]	D. S. Johnson, C. R. Aragon, L. A. McGeoch and C. Schevon, Optimization by simulated annealing: an experimental evaluation; Part I, graph partitioning,, Operations Research, 37 (1989), 865. doi: 10.1287/opre.37.6.865. Google Scholar
[10]	M. Karakul, Joint pricing and procurement of fashion products in the existence of clearance markets,, International Journal of Production Economics, 114 (2008), 487. doi: 10.1016/j.ijpe.2007.03.026. Google Scholar
[11]	S. Kirkpatrick, C. D. Gelatt and M. P. Vecchi, Optimization by simulated annealing,, Science, 200 (1983), 671. doi: 10.1126/science.220.4598.671. Google Scholar
[12]	H. S. Lau and A. H. L. Lau, Some results on implementing a multi-item multi-constraint single-period inventory model,, International Journal of Production Economics, 48 (1997), 121. doi: 10.1016/S0925-5273(97)82104-4. Google Scholar
[13]	Y. H. Lee, J. W. Jung and Y. S. Jeon, An effective lateral transshipment policy to improve service level in the supply chain,, International Journal of Production Economics, 106 (2007), 115. doi: 10.1016/j.ijpe.2006.05.007. Google Scholar
[14]	B. K. Lee, K. H. Kang and Y. H. Lee, Decomposition heuristic to minimize total cost in a multi-level supply chain network,, Computers and Industrial Engineering, 54 (2008), 945. doi: 10.1016/j.cie.2007.11.005. Google Scholar
[15]	F. C. Lee and M. J. Yao, On the joint replenishment problem under power-of-two policy,, Computers and Operations Research, 30 (2003), 1319. doi: 10.1016/S0305-0548(02)00073-4. Google Scholar
[16]	A. J. Martin, "DRP: Distribution Resource Planning,", John Wiley & Sons, (1995). Google Scholar
[17]	I. Moon and G. Gallego, Distribution free procedures for some inventory models,, Journal of the Operational Research Society, 45 (1994), 651. Google Scholar
[18]	I. Moon and E. Silver, Multi-item newsvendor problem with a budget constraint and fixed ordering costs,, Journal of the Operational Research Society, 51 (2000), 602. Google Scholar
[19]	S. Nahmias, "Production and Operations Analysis,", $4^{th}$ ed., (2001). Google Scholar
[20]	F. Olsson, Optimal policies for inventory systems with lateral transshipments,, International Journal of Production Economics, 118 (2009), 175. doi: 10.1016/j.ijpe.2008.08.021. Google Scholar
[21]	E. L. Porteus, Numerical comparisons of inventory policies for periodic review systems,, Operations Research, 33 (1985), 134. doi: 10.1287/opre.33.1.134. Google Scholar
[22]	G. Punj and D. W. Stewart, Cluster Analysis in Marketing Research: Review and Suggestions for Application,, Journal of Marketing Research, 20 (1983), 134. doi: 10.2307/3151680. Google Scholar
[23]	R. O. Roundy, 98%-effective integer-ratio lot-sizing for one-warehouse multi-retailer systems,, Management Science, 3 (1985), 1416. doi: 10.1287/mnsc.31.11.1416. Google Scholar
[24]	H. Scarf, A min-max solution of an inventory problem,, in, (1958), 201. Google Scholar
[25]	L. B. Schwarz, A simple continuous review deterministic one-warehouse n-retailer inventory problem,, Management Science, 19 (1973), 555. doi: 10.1287/mnsc.19.5.555. Google Scholar
[26]	K. Shang and J. S. Song, Newsvendor bounds and heuristic for optimal policies in serial supply chains,, Management Science, 49 (2003), 618. doi: 10.1287/mnsc.49.5.618.15147. Google Scholar
[27]	S. Sharma, "Applied Multivariate Techniques,", John Wiley, (1995). Google Scholar
[28]	E. A. Silver, D. F. Pyke and R. Peterson, "Inventory Management and Production Planning and Scheduling,", John Wiley & Sons, (1998). Google Scholar
[29]	D. Simchi-Levi, P. Kaminsky and E. Simchi-Levi, "Designing & Managing the Supply Chain,", McGraw-Hill, (2003). Google Scholar
[30]	W. J. Stevenson, "Operation Management,", McGraw-Hill, (2002). Google Scholar
[31]	C. S. Tang and R. Yin, Responsive pricing under supply uncertainty,, European Journal of Operational Research, 182 (2007), 239. doi: 10.1016/j.ejor.2006.07.011. Google Scholar
[32]	S. Viswanathan, A new optimal algorithm for the joint replenishment problem,, Journal of the Operational Research Society, 47 (1996), 936. Google Scholar
[33]	S. Viswanathan and K. Mathur, Integrating routing and inventory decisions in one-warehouse multiretailer multiproduct distribution systems,, Management Science, 43 (1997), 294. doi: 10.1287/mnsc.43.3.294. Google Scholar
[34]	J. H. Ward, Hierarchical grouping to optimise an objective function,, Journal of the American Statistic Association, 58 (1963), 236. doi: 10.2307/2282967. Google Scholar
[35]	Z. Weng, Coordinating order quantities between the manufacturer and the buyer: A generalized newsvendor model,, European Journal of Operational Research, 156 (2004), 148. doi: 10.1016/S0377-2217(03)00003-1. Google Scholar
[36]	R. E. Wildeman, J. B. G. Frenk and R. Dekker, An efficient optimal solution method for the joint replenishment problem,, European Journal of Operational Research, 99 (1997), 433. doi: 10.1016/S0377-2217(96)00072-0. Google Scholar
[37]	M. J. Yao and Y. C. Wang, Theoretical analysis and a search procedure for the joint replenishment problem with deteriorating products,, Journal of Industrial and Management Optimization, 1 (2005), 359. Google Scholar
[38]	M. J. Yao and Y. C. Wang, A new algorithm for one-warehouse multi-retailer systems under stationary-nested policy,, Optimization Methods & Software, 21 (2006), 41. doi: 10.1080/10556780512331318029. Google Scholar

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An integrated approach for the operations of distribution and lateral transshipment for seasonal products - A case study in household product industry

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