Pass the Parcel - Transshipments: An Emerging Inventory Recourse to Achieve Supply Chain Leagility

How would you prefer your supply chain? "Agile," so you deliver without delay, or "lean," so your costs are minimized. Since agile can be expensive, while lean can annoy customers, why not have both? "Leagility" is a new term that describes being both at the same time, and Yale Herer, Michal Tzur and Professor Enver Yücesan examine transshipments, one method of reducing the trade-off between costs and service.

by Enver Yücesan, Michael Tzur,Yale Herer
Last Updated: 23 Jul 2013

Reducing costs while maintaining a high level of service is an important goal of any manager. But you usually have one at the expense of the other. Enver Yücesan, Professor of Operations Management at INSEAD, Yale Herer and Michal Tzur, both from the Department of Industrial Engineering, Tel Aviv University, show how a particular supply chain tactic enables firms to achieve "leagility" – being both lean and agile, both efficient and effective, at the same time.

It is given that demand for low margin consumer staples that satisfy basic needs, such as soap, is usually stable. This allows producers to concentrate on designing lean, low cost supply chains. But on the opposite end of the spectrum, the demand for more innovative, high margin products is more unpredictable. These products require more market responsive, or agile, supply chains.

Therefore, to achieve the optimal situation, the authors explain that the consumer end of the supply chain should be agile, while the manufacturing end should be lean. The important point is to distinguish the place where the supply chain stops responding directly to the consumer and starts planning for possible changes in demand, or the decoupling point. The position of it depends on how long the consumer is willing to wait.

Transshipments, actively distributing and re-distributing stock (among different warehouses, for example), is one way of doing both at the same time and achieving "leagility." This paper describes not only the role of this tactic in supply chain management, but also takes a look at some models you can use to optimize this policy.

International Journal of Production Economics, December 2002

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