Lateral Transhipment Inventory Models: A Systematic Literature Review of Models and Solution Approaches

Abstract

Proper inventory management is known to be one of the major challenges in the retail industry. Maintaining a sufficient level of inventory while reducing the total inventory cost results in increasing customer satisfaction and increasing profitability by reducing the overall cost in the retail industry. Lateral transhipment is one of the most effective ways to achieve both objectives. Lateral transhipment is rotating or sharing of stocks among locations in the same echelon. Due to the effectiveness of lateral transhipment in better managing inventory, it has been studied widely in literature. This paper aims to provide a comprehensive review of literature on different lateral transhipment inventory models and solution procedures proposed. The objective is to analyse and identify the research gap for future research and to identify solution approaches used in existing literature for lateral transhipment problems so that the potential research paths can be explored to improve the inventory management in the retail industry. Even though there are reviews conducted for lateral transhipment, to the best of our knowledge most of them do not focus on the solution approaches used. Hence, this paper focuses on the model setting and solution approaches used in the literature. The results of the literature review have revealed that less attention has been given to proactive and hybrid transhipment approaches. Also, the high number of constraints used commonly in lateral transhipment literature can be considered as a restriction in generalising the solutions proposed. It was also concluded that when the number of retailers and items in the considered inventory model increases, approximation techniques were mostly used in literature rather than exact algorithms. Developing complex proactive or hybrid models for multiple item transhipment among multiple retailers or warehouses while considering the allocation of items to vehicles is a future research area to be explored. Also, it was discovered that all the lateral transhipment problems in literature are aligned with economic objectives. Hence, considering the environmental objectives like green approaches is a challenge for future research.

Keywords: Inventory Management, Lateral Transhipment, Retail Industry, Solution Approaches