Inventory Pooling

Sharing resources in the field of inventory management is well known as pooling. There exist different kinds of inventory pooling, either physically by centralizing inventories at a depot or virtually by sharing local inventories through transshipments. Earlier work mainly focused on the statistical effect of pooling demand and supply risk, whereas more recent work analyzed the problem from a distributed decision making perspective. The increasing availability and visibility of real time data about inventory levels at central and local warehouses and the position of in-transit deliveries in a networked economy provides a significant opportunity to increase fulfillment efficiency and flexibility.

The challenges of inventory pooling in a networked economy are the multiple opportunities to improve performance by available real time information and the willingness to truthfully share it. This includes the value of installed base and condition information in spare parts applications and the stock and delivery status of multiple (decentralized) warehouses in distribution systems. There exist multiple decision makers having distributed private information. Cooperative game theory is only one extreme approach to distribute gains from horizontal co-operations which has often proved to not yield stable negotiation outcomes in repeated decision environments under symmetric information. Therefore, more sophisticated mechanisms to truthfully share installed base and demand forecast information with ex-post satisfactory gain/cost allocations need to be developed.

The research project includes design and operational tasks. The warehouse location of pools and safety stock placement decisions are of a more strategic/tactical nature whereas the inventory deployment needs to be carried out on a short term, in an extreme case, real time fashion when a customer request arrives and the shipping source needs to be confirmed. In a distributed decision environment, a set of stable transfer pricing mechanisms is necessary to simultaneously achieve the goal of truthful initial information sharing when dimensioning the initial pool of capacities (resources) and an in hindsight cost allocation mechanism perceived as being fair and thereby ensuring a stable ongoing horizontal logistics cooperation to pool inventories.