Optimal inventory policy for a Markovian two-echelon system with returns and lateral transshipment

Allen H. Tai, Wai Ki Ching

Research output: Journal article publicationJournal articleAcademic researchpeer-review

30 Citations (Scopus)


In this paper, we consider a Markovian model for a two-echelon inventory/return system. The system consists of a supply plant with infinite capacity and a central warehouse for inventory and returns. There are also a number of local warehouses which are also capable of re-manufacturing of returns to products. To obtain a high service level of handling inventory and returns, lateral transshipment of demands is allowed among the local warehouses. The objective is to minimize the total expected operating cost by choosing the maximum inventory level at the local warehouses. We present some theoretical results for the proposed model. Numerical examples are also given to demonstrate the performance of the system.

Original languageEnglish
Pages (from-to)48-55
Number of pages8
JournalInternational Journal of Production Economics
Publication statusPublished - May 2014


  • Lateral transshipment
  • Local warehouse
  • Markovian queueing networks
  • Returns
  • Two-echelon system

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


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