  This paper addresses the two-stocking locations single item non-stationary
stochastic lot-sizing problem. The inventory level at each location is reviewed
periodically. Items can be reordered and received from a common central
warehouse and can also be transshipped laterally from the other location.
Lateral transshipment is assumed to be proactive to re-distribute the stock
between two stocking locations. Therefore, the order of action in each period
is: transshipping (if necessary), reordering (if necessary) and satisfying the
demand at each location and each installation. The costs are imposed on
transshipping, ordering, holding, and back-ordering. The key issue in such
systems is to determine the quantity of the lateral transshipment between
depots and the order quantities from the warehouse to both locations. We
formulate the problem via stochastic dynamic programming to minimise the
expected total cost. Since the number of actions increases exponentially as the
feasible quantities of transshipment and replenishment grow, we develop
two-stage dynamic programming to improve the computation efficiency. A
near-optimal policy against this two-stage formulation is introduced based on a
mixed integer linear programming and receding-horizon approach. numerical
experiments are implemented to demonstrate the performance of the two-stage
model and the heuristic algorithm
