Supply flexibility in two-echelon stochastic spare parts inventory systems with real-time pipeline information

In a two-echelon supply chain, achieving high service levels at minimal cost can necessitate the use of flexible supply options, such as lateral transshipment and emergency delivery, particularly during stockouts at local warehouses. However, these flexible supply options are only beneficial if they enable deliveries to arrive earlier than regular replenishment orders. Therefore, it is essential to track the delivery of outstanding orders and obtain information about the supply pipeline, especially for spare parts networks where demand is typically slow-moving. Advances in real-time tracking technologies, such as the Internet of Things, provide critical visibility into the supply pipeline. We propose a flexible supply strategy that incorporates real-time pipeline information with regard to the position of regular replenishment orders. We develop a model to analyze the fraction of each supply option chosen and the long-term average operational cost under the proposed flexible supply strategy. By comparing the proposed model with a baseline model that excludes pipeline information, our numerical study reveals an average cost saving of 5.7% from using pipeline information. Furthermore, incorporating pipeline information impacts optimal inventory allocation, reducing the target inventory level at the central warehouse and shifting more inventory downstream to local warehouses. Pipeline visibility reduces the reliance on expensive emergency deliveries, leading to a more sustainable and agile supply chain.