Two-echelon spare parts inventory system subject to a service constraint

Abstract

In this paper, we consider a spare parts inventory problem faced by a manufacturer of electronic machines with expensive parts that are located at various customer locations. The parts fail infrequently according to a Poisson process. To serve customers when a failure occurs, the manufacturer operates a central warehouse and many field depots that stock spare parts. The central warehouse acts as a repair facility and replenishes stock at the field depots. There is a centralized decision-maker who manages the inventory in both the central warehouse and the field depots. We develop a continuous review, base stock policy for this two-echelon, multi-item spare parts inventory system. We formulate a model to minimize the system-wide inventory cost subject to a response time constraint at each field depot. We present an efficient heuristic algorithm and study its computational effectiveness.

Acknowledgements

The authors would like to thank Professor Izak Duenyas and two anonymous referees for their helpful comments and suggestions. This work was supported in part by ONR contracts N00014-95-1-0232 and N00014-01-1-0146 and in part by NSF contracts DMI-9732795 and DMI-0085683.