Computing the value of transshipment flexibility in distribution networks
M. Laumanns (ETH Zurich)
In inventory/distribution systems, lateral stock transshipments might lead to cost savings by effectively sharing inventory on the same echelon level. We present an approach to quantify the value of this additional flexibility by determining the corresponding optimal control policies, and the resulting cost, in supply networks with transshipments under uncertain demand via stochastic dynamic programming. The minimum guaranteed cost reduction of the discounted expected cost compared to the base case without transshipment can then be used as a lower bound for the value of this flexibility option.