An inventory system with two supply modes and capacity constraints

This paper analyses a periodic review inventory system with a main and an emergency supply mode, where policies of the base–stock type are used at both supply channels. Contrary to previously published models, the capacity of the emergency channel is taken into account. We examine two alternative ordering policies for that channel: an ‘early-ordering’ policy that almost eliminates early stockouts in a replenishment cycle and a ‘late-ordering’ policy that delays the emergency order decision until more demand information has been accumulated. Approximate cost models are developed and properties of their optimal solutions are derived. Simulation results indicate that these solutions are near optimal. Conclusions are drawn about the relative effectiveness of the two emergency ordering policies.