Integrated production-distribution planning has become a notable area of interest for researchers and practitioners in the last two decades. Transshipment is an important phenomenon in the planning especially when products are needed to be shared among different market locations. In this paper, a production-distribution planning model for a two echelon supply chain including plants-warehouses and customer regions are proposed, considering transshipment among the warehouses. The problem is described in two parts. In the first part a discussion on general transshipment problem is discussed and in the second part the model is modified for use in dairy industry as a special case. In dairy industry, the shelf life of the products is smaller as compared to other products. The primary objective of this paper is to minimise the total cost using some typical strategies, comprising of three conditions of production cost, i.e., at normal production rates, applying outsourcing and at over time production; inventory holding costs; backordering cost; changing workforce level; transshipment cost and transportation cost. Further genetic algorithm is used to find the solution to a specific case problem. Finally, some meaningful conclusions mere drawn. © 2017 Inderscience Enterprises Ltd.