Separation of Perishable Inventories in Offline Retailing Through Transshipment

Transshipment in retailing is a practice where one outlet ships its excess inventory to another outlet with inventory shortages. By balancing inventories, transshipment can reduce waste and increase fill rate at the same time. In this paper, we explore the idea of transshipping perishable goods with a fixed finite lifetime in offline grocery retailing. In the offline retailing of perishable goods, customers typically choose the newest items first, which can lead to substantial waste. We show that in this context, transshipment plays two roles. One is inventory balancing, which is well known in the literature. The other is inventory separation, which is new to the literature. That is, transshipment allows a retailer to put newer inventory in one outlet and older inventory in the other. This makes it easier to sell older inventory and reduces waste as a result. To understand how exactly inventories should be separated, we study a class of heuristic policies whose computation relies on only two pieces of information, namely the number of items expiring in one period (old items) and that of the rest (new items). We show that the optimal policy among them can be characterized by two increasing switching curves. The two switching curves divide the entire state space into three regions. In the first region, only one outlet holds old items while both hold new items. In the second, one outlet holds old items and the other holds new items. In the third, only one outlet holds new items while both hold old items. We also conduct numerical studies to quantify the value of transshipment.