Inventory Rebalancing through Lateral Transshipments

Abstract

Disruption in supply and demand causes imbalances in inventory positions across an enterprise’s supply chain network. In the medical device industry, having the right product at the right location in the right quantity is of critical importance. Therefore, companies thrive to maintain an optimal inventory position across their distribution network. Boston Scientific, a global leader in the medical device industry, has been facing an inventory imbalance post-Covid across its distribution network. To optimize the inventory position across the company’s distribution network, this study has explored lateral transshipment, a practice of repositioning inventory between same echelon distribution centers. We have primarily used Mixed Integer Linear Programming (MILP) to find the optimal transshipment solution at each SKU and distribution center level. Existing inventory classifications systems, and newly developed heuristics to select high priority SKUs for optimization. Simulation studies were conducted to generate stochastic demand, and analyze how the optimized inventory model compares to the current model. Our research shows that lateral transshipment reduces 10% to 25% of total inventory cost while maintaining a superior inventory position compared to the current inventory model under varying demand.