Managing lateral transshipments in a supply chain environment

With the intense competition in the wholesale business sector, there have been significant developments and applications of various supply chain management strategies to streamline the flow of goods. The stochastic nature of retailer demand makes precise demand forecasts impossible, warehouses in turn, cannot plan inventory easily. For cost competitiveness, warehouses tend to maintain the inventory at a low level and face the challenges of satisfying customer expectation for minimized storage cost. Even though cost competitiveness has become an imperative in inventory management,hence the adoption of this low invenotry strategy, when demand suddenly increases they need to backorder extra supplies from their suppliers or source extra from other wholesalers in the same region. The latter response is known as lateral transshipment which is faster but more expensive than sourcing from general suppliers. Inventory managers need to determine whether orders should be placed with a supplier or another wholesaler, and further, whether it should be in full or partly from a supplier and partly from another wholesaler. Such decisions are influenced by the requirement to minimize the total cost involved.