An information based multiechelon inventory system with emergency orders

In this paper we study an (S−1, S) type multiechelon inventory system where all the stocking locations have the option to replenish their inventory through either a normal or a more expensive emergency resupply channel. When ordering a unit, each stocking location decides which channel to use based on its inventory level and the remaining leadtimes of its outstanding orders. We consider the implications of this policy by developing expressions for the operating characteristics of the system and describing a procedure for finding the optimal policy parameters. A numerical study presented in the paper indicates that when alternative resupply modes are available our policy, which incorporates the information on the remaining leadtimes of the outstanding orders in selecting the resupply mode, can result in considerable cost savings when compared to policies which allow a single resupply mode.