Service parts inventory control with lateral transshipment and pipeline stockflexibility

In equipment‐intensive industries such as truck, electronics, aircraft and dredging vessel manufacturing, service parts are often slow moving items for which the transshipment time is not negligible. However, this aspect is hardly considered in the existing service logistics literature. In this paper, we consider this aspect and propose a customer‐oriented service measure which takes into account pipeline stock and lateral transshipment flexibility. We provide an approximation method for optimizing the stock allocation subject to this service measure. Via extensive numerical experiments, we show that our approximation performs very well with respect to both system performance and costs. Moreover, our numerical experiments indicate that including lateral transshipments and pipeline stock flexibility in inventory decisions is more beneficial than lateral transshipments alone. This effect is larger for high demand rates and high lateral transshipment costs. Results from a case study in the dredging industry confirm our findings. We therefore recommend introduction of pipeline stock information such as the track and trace information from freight carriers in existing ERP systems.