Operational level planning of a multi-item two-echelon spare parts inventory system with reactive and proactive interventions

Abstract

In this paper, we investigate operational spare parts planning in a multi-item two-echelon distribution system, taking into account real-time supply information in the system. We consider a broad range of operational interventions, either reactive (to solve a shortage) or proactive (to avoid a shortage). These interventions particularly include lateral transshipments between warehouses (local warehouses), emergency shipments from the depot (central warehouse), and doing nothing and waiting for pipeline inventory. We propose an integrated approach to determine the optimal timing and size of each intervention type to minimize the total downtime and shipment costs associated with interventions. Data from a leading original equipment manufacturer of high-tech systems is used to test the performance of our approach. We find that our integrated approach reduces total downtime considerably with a very limited increase in total shipment costs. Proactive emergency shipments contribute most to downtime reduction. The benefit of our approach is higher for high demand parts. Allowing complete pooling between warehouses increases downtime savings and usage of proactive emergency shipments even further. Our approach is efficient enough to solve practical size problems. We also propose a heuristic based on a greedy algorithm, which is well known in the literature. We find that the gap between the heuristic and the optimal solution is relatively large.