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This paper considers a two-stage distribution system consisting of a supplier supplying several retailers with stochastic demand rates. Replenishments by the supplier happen cyclically, based on average retailer demand rates. Hence, the considered distribution problem between the suppliers and its retailers is a Cyclic Inventory Routing Problem (CIRP), which we solve with a state-of-the-art heuristic solution method. To cope with the demand stochasticity, lateral transshipments can happen between retailers in each time period. We propose a redistribution policy that determines the quantities being redistributed through lateral transshipments based on the desired level of customer service the retailers want to reach (using the desired fill rate) and their actual inventory levels. The cost of the daily redistribution is determined by solving a Travelling Salesman Problem (TSP) covering the participating retailers. The potential benefits of the collaboration among retailers are analyzed by comparing the distribution costs, the redistribution costs, the inventory holding costs and the costs of lost sales at the retailers in different scenarios.

Tackling Demand Stochasticity by Redistribution among Retailers in a Two-stage Distribution System