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Inventory sharing in integrated network design and inventory optimization with low-demand parts

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  • Iyoob, Ilyas Mohamed
  • Kutanoglu, Erhan
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    Abstract

    Service Parts Logistics (SPL) problems induce strong interaction between network design and inventory stocking due to high costs and low demands of parts and response time based service requirements. These pressures motivate the inventory sharing practice among stocking facilities. We incorporate inventory sharing effects within a simplified version of the integrated SPL problem, capturing the sharing fill rates in 2-facility inventory sharing pools. The problem decides which facilities in which pools should be stocked and how the demand should be allocated to stocked facilities, given full inventory sharing between the facilities within each pool so as to minimize the total facility, inventory and transportation costs subject to a time-based service level constraint. Our analysis for the single pool problem leads us to model this otherwise non-linear integer optimization problem as a modified version of the binary knapsack problem. Our numerical results show that a greedy heuristic for a network of 100 facilities is on average within 0.12% of the optimal solution. Furthermore, we observe that a greater degree of sharing occurs when a large amount of customer demands are located in the area overlapping the time windows of both facilities in 2-facility pools.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 224 (2013)
    Issue (Month): 3 ()
    Pages: 497-506

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    Handle: RePEc:eee:ejores:v:224:y:2013:i:3:p:497-506

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Inventory; Logistics; Service parts logistics; Inventory sharing; Network design;

    References

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    1. Kutanoglu, Erhan & Mahajan, Mohit, 2009. "An inventory sharing and allocation method for a multi-location service parts logistics network with time-based service levels," European Journal of Operational Research, Elsevier, vol. 194(3), pages 728-742, May.
    2. Hau L. Lee, 1987. "A Multi-Echelon Inventory Model for Repairable Items with Emergency Lateral Transshipments," Management Science, INFORMS, vol. 33(10), pages 1302-1316, October.
    3. Maqbool Dada, 1992. "A Two-Echelon Inventory System with Priority Shipments," Management Science, INFORMS, vol. 38(8), pages 1140-1153, August.
    4. Kranenburg, A.A. & van Houtum, G.J., 2009. "A new partial pooling structure for spare parts networks," European Journal of Operational Research, Elsevier, vol. 199(3), pages 908-921, December.
    5. Paterson, Colin & Kiesmüller, Gudrun & Teunter, Ruud & Glazebrook, Kevin, 2011. "Inventory models with lateral transshipments: A review," European Journal of Operational Research, Elsevier, vol. 210(2), pages 125-136, April.
    6. Patrik Alfredsson & Jos Verrijdt, 1999. "Modeling Emergency Supply Flexibility in a Two-Echelon Inventory System," Management Science, INFORMS, vol. 45(10), pages 1416-1431, October.
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