Transshipment and Its Impact on Supply Chain Members’ Performance

This note extends some of the key results of Dong and Rudi (2004) to general demand distributions. This generalization is achieved in two steps. First, we build on the analysis of Dong and Rudi to demonstrate that an inventory problem with transshipment is equivalent to a newsvendor problem with an adjusted demand. Then, we study the impact of transshipment by comparing the adjusted demand with the original demand. In addition to extending the results in the existing literature, this note presents a novel approach for analyzing the impact of risk pooling.