Efficient heuristics for two-echelon spare parts inventory systems with an aggregate mean waiting time constraint per local warehouse

Abstract

This paper presents solution procedures for determining close- to-optimal base stock policies in a multi-item two-echelon spare parts inventory system. The system consists of a central warehouse and multiple local warehouses, and there is a target for the aggregate mean waiting time per local warehouse. We develop four different heuristics and derive a lower bound on the optimal total cost. The effectiveness of each heuristic is assessed by the relative gap between the heuristic’s total cost and the lower bound. The results of the computational experiments show that a greedy procedure performs most satisfactorily. It is accurate as indicated by relatively small gaps, easy to implement, and the computational requirements are limited. Its computational efficiency can be increased by using Graves’ approximate evaluation method instead of an exact evaluation method, while the results remain accurate. That results in a feasible algorithm for real-life cases with many items and local warehouses.