Transshipment Timing in Inventory Competition

  • Lin ZANG (Speaker)

Activity: Talks or PresentationsOther Invited Talks or Presentations


Mismatch between supply and demand is one of the most important challenges in supply chain management. In non-overlapping markets, a retailer with excess inventory may transship to another retailer with a shortage, which is mutually beneficial. However, in overlapping markets where customer switching and transshipment could coexist, it is less obvious to stakeholders whether transshipment should be implemented. We study the preferences of suppliers and retailers under the interaction of customer switching and transshipment in overlapping markets. We aim to investigate the impact of transshipment time (before or after customer switching) on competing retailers, namely pre-substitution transshipment (TS) and post-substitution transshipment (ST). By building a one-supplier-two-retailer game model, we find that when retailer with excess inventory can dictate the transshipment price, there exists a unique equilibrium order quantity for both timing scenarios. Regarding the initial order quantity, we find that the order quantity of the ST scenario will always be higher than the TS scenario in the symmetric case. So suppliers will always prefer to facilitate post-substitution transshipment by which they can receive more orders. But surprisingly, when transshipment price is set to the retail price, the expected profit of the ST scenario always dominates that of the TS scenario though TS scenario has mitigated the inventory competition. This is a new result to the literatures. We then examine the impact of the transshipment price, the customer substitution probability, and transshipment cost to the performance of these two timing scenarios. Through an extensive numerical test, we manage to clarify the boundaries and conditions for the relatively good choice for retailers under different parameters.
Period24 Apr 2020
Event titlePostgraduate Seminar Series
Event typePublic Lecture