Redeploying excess inventories with lateral and reverse transshipments

Abstract

Service parts management has the potential to generate high profits for companies that deliver superior service parts services in the after-sale market. However, a big challenge in managing service parts operations is to meet the high expectations of service levels and to reduce excess inventories caused by fluctuating demand and a complex service parts logistics network structure. By expanding the conventional inventory management that passively focuses on the forward and lateral flows of service parts deployment, we propose a crucial but overlooked practice of inventory redeployment as an integral part of the operations that allow the proactive management of lateral and reverse flows of service parts. We formulate the service parts inventory problem with the application of an excess inventory redeployment strategy in a multi-echelon service network as a multi-period integer programming model. This optimisation model is evaluated using a case study of an international company’s service parts operations and demonstrates a higher cost-saving potential. Our novel, integrated approach confers the advantage of redeploying excess inventories in a closed-loop service parts logistics network with a higher cost-saving potential that could not have been achieved in a conventional approach.