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Modeling Emergency Supply Flexibility in a Two-Echelon Inventory System

Author

Listed:
  • Patrik Alfredsson

    (Systecon AB, Box 5205, SE-102 45 Stockholm, Sweden)

  • Jos Verrijdt

    (Eindhoven University of Technology, Faculty of Technology Management, Paviljoen F16, P.O. Box 513, 5600 MB, The Netherlands)

Abstract

We consider a two-echelon inventory system for service parts. To obtain high service levels at a low cost we allow not only for normal supply of parts but also for emergency supply options in terms of lateral transshipments and direct deliveries. After presenting the strategy we use for satisfying customer demand, we construct an analytical model that we use to calculate relevant performance measures. Simulation shows that our model produces accurate estimates, and that the performance of the inventory system is insensitive to the lead-time distribution. After introducing a cost structure we show that the strategy we propose can result in considerable savings when compared to using only normal supply. Comparison of the results of our model with the results of other models indicates that the combined use of lateral transshipments and direct deliveries can lead to significant cost savings.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:10:p:1416-1431
    as

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    File URL: http://dx.doi.org/10.1287/mnsc.45.10.1416
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    References listed on IDEAS

    as
    1. Stephen C. Graves, 1985. "A Multi-Echelon Inventory Model for a Repairable Item with One-for-One Replenishment," Management Science, INFORMS, vol. 31(10), pages 1247-1256, October.
    2. John A. Muckstadt & L. Joseph Thomas, 1980. "Are Multi-Echelon Inventory Methods Worth Implementing in Systems with Low-Demand-Rate Items?," Management Science, INFORMS, vol. 26(5), pages 483-494, May.
    3. Maqbool Dada, 1992. "A Two-Echelon Inventory System with Priority Shipments," Management Science, INFORMS, vol. 38(8), pages 1140-1153, August.
    4. 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.
    Full references (including those not matched with items on IDEAS)

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