| Inventory costs represent a significant portion of a company's total cost of doing business. The problem addressed in this quantitative experimental study is how demand "6 uncertainty and the amount of inventory held affects a business's ability to minimize cost, maximize profit, and meet customer service levels. Excess inventory increases carrying costs while deficient inventory levels result in poor customer service and lost sales. Demand uncertainty makes it difficult for a business to determine optimum inventory levels. An increasing number of businesses have developed inventory management policies that pool inventory, referred to as transshipment, to maximize profit, meet customer demand, lower inventory costs, and address demand uncertainty. The purpose of this study was to model the relationships between transshipment procedures and the supply chain to assess the impact that transshipments have on a business's ability to minimize inventory costs, maximize system profit, provide adequate customer service levels and address demand uncertainty. Two inventory management policies developed by the researcher were used to assess how well transshipments minimize inventory cost, maximize system profit, and meet customer service levels. Pseudorandom demand data was used to assess the performance of the inventory policy models. The model output underwent comparative numerical and statistical analysis to assess the relationships between transshipment and system profit in a two-echelon supply chain. Non-parametric Wilcoxon tests showed the difference in system profit between the two inventory policies was significant (p < .001). Test results indicated that the occurrence of random demand after transshipment had a significant impact on system profit (p < .006), and the use of incentives to encourage transshipment did not have a significant impact on system profit (p < .871). A benefit of the research maybe the development of a methodology for assessing inventory management policies that employ transshipment to manage inventory. Findings within this study may give supply chain managers insight into the effectiveness of transshipment as a means of managing inventory to maximize system profit. Expanding this study to assess the use of transshipment in more complex supply chains would better assess the value of transshipment as an inventory management tool. |
