Analysis of a two‐echelon inventory system with two supply modes

Analysis of a two‐echelon inventory system with two supply modes

0.00 Avg rating0 Votes
Article ID: iaor20128023
Volume: 225
Issue: 2
Start Page Number: 263
End Page Number: 272
Publication Date: Mar 2013
Journal: European Journal of Operational Research
Authors: ,
Keywords: supply & supply chains
Abstract:

In this paper, we consider a serial two‐echelon periodic review inventory system with two supply modes at the most upstream stock point. As control policy for this system, we propose a natural extension of the dual‐index policy, which has three base‐stock levels. We consider the minimization of long run average inventory holding, backlogging, and both per unit and fixed emergency ordering costs. We provide nested newsboy characterizations for two of the three base‐stock levels involved and show a separability result for the difference with the remaining base‐stock level. We extend results for the single‐echelon system to efficiently approximate the distributions of random variables involved in the newsboy equations and find an asymptotically correct approximation for both the per unit and fixed emergency ordering costs. Based on these results, we provide an algorithm for setting base‐stock levels in a computationally efficient manner. In a numerical study, we investigate the value of dual‐sourcing in supply chains and illustrate that dual‐sourcing can lead to significant cost savings in cases with high demand uncertainty, high backlogging cost or long lead times.

Reviews

Required fields are marked *. Your email address will not be published.