A network approach to modeling the multi‐echelon spare‐part inventory system with backorders and interval‐valued demand

A multi‐echelon inventory system implies the existence of a hierarchy of stocking locations, and the dependence and interaction between them. We consider a multi‐echelon, spare‐part inventory management problem with outsourcing and backordering. The problem is characterized by deterministic repair time/cost, and supply and demand that lie within prescribed intervals and that vary over time. The objective is to minimize the total inventory and transportation costs. We develop a network model for problem analysis and present a network flow algorithm for solving the problem. We prove that the Wagner–Whitin property, known for the lot‐sizing problem, can be extended to the spare‐part inventory management problem under study.