Effects Of Inventory Sharing On The Optimization And Order Quantities Of A Two-retailer System

In the field of the research on supply chain,inventory management has always been the one of the focuses.It has been a challenge for retailers to satisfy customers'demand while controlling their inventory holding costs.The traditional method to solve this problem is to adopt a hierarchical inventory system in which the upstream distribution centers provide a depth of inventory management.Nowadays,in the actual business activities,some larger retailers often set up different and independent departments or subsidiaries for different channels.These subsidiaries or departments will always cooperate internally.In addition,many large companies have also begun to cooperate on the business operations,and one of the cooperation contents is the inventory sharing.As we can see,the business cooperation becomes more and more common in the actual business activities,and cooperation plays a more important role than competition.Therefore,sharing and transshipping inventory within the same echelon of supply chain,as a more flexible and responsive approach,has gained considerable attention in recent years.Inventory transshipment is a key method to achieve inventory sharing.This article considers two retailers located in different markets.When they adopt the inventory sharing policy,retailers with excessive inventory are obliged to transship their own inventory products to meet the residual demand for the products of the cooperating retailer.This paper takes the newsvendor model as the theoretical modeling basis,and establishes two inventory sharing models,which are the two-retailer system model without inventory sharing and the two-retailer system model with revenue-allocated transshipment.Through mathematical calculations and proofs,we focus on the effects of inventory sharing on the optimization and order quantities of a two-retailer system.The two-retailer system model without inventory sharing is the control group of the two-retailer system model with revenue-allocated transshipment.In the two-retailer system model with revenue-allocated transshipment,we introduce a combination of income-allocated coefficients for each transshipment product for both the two retailers,which is more general.Both retailers will provide income share for the transshipment products sold at the market of the other.And what we find is inconsistent with the traditional point is that the impact of the introduction of the inventory sharing mechanism on the optimal inventory(order quantity)settings of the two retailers is complex,the optimal inventory(order quantity)is not simply increased or decreased.In addition,we find a characteristic parameter that describes the system,which directly affects how the changes of the two retailers' optimal inventory(order quantity)in this system are distributed within the feasible region.We use numerical examples to verify the correctness of the key conclusions in the model.What's more,we combine the theoretical research of this article with real business scenarios through introducing a practical business case to show the successful application of inventory sharing theory in business activities,which has practical significance.Finally,based on the core conclusions of this article,we give corresponding management inspirations.