Regular and urgent ordering with lateral transshipment in a distribution network with stochastic pre-ordered and peddling demands

We propose inventory replenishment and lateral transshipment policies for a distribution network. The distribution centers place weekly regular orders and daily urgent orders to the factory. Two classes of stochastic demands, pre-ordered and peddling, cause either backlogging or lost sales when they are not satisfied. The policy was simulated using data from a case study. The results showed that the proposed policies reduced the total cost, which includes transportation costs for satisfied demands and lateral transshipment, back order and lost sale costs for unsatisfied demands, and inventory holding costs. The best policy reduced long-run total cost and was proved robust from sensitivity analysis. Finally, implementing the policy with the case study confirmed 9.97% total cost reduction and its practical application.