An improved decision rule for emergency replenishments

Abstract

This paper provides a new decision rule for emergency replenishments in an inventory system. The decision rule is a generalization of a previous decision rule suggested and evaluated in Axsäter (2003, 2007). An improvement step is added to this rule and this often means considerably better performance. The decisions are based on complete information about the system state. An advantage with our decision rule is its generality. It is possible to handle batch ordering, compound Poisson demand and emergency replenishments that take time. The decision rule has also a performance guarantee in the sense that emergency replenishments will always lead to lower expected costs. The rule can also be used in connection with lateral transshipments.