Optimizing Service Parts Inventory in a Multiechelon, Multi-Item Supply Chain with Time-Based Customer Service-Level Agreements

Kathryn E. Caggiano (), Peter L. Jackson (), John A. Muckstadt () and James A. Rappold ()
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Kathryn E. Caggiano: School of Business, University of Wisconsin, Madison, Wisconsin 53706
Peter L. Jackson: School of Operations Research and Industrial Engineering, Cornell University, Ithaca, New York 14853
John A. Muckstadt: School of Operations Research and Industrial Engineering, Cornell University, Ithaca, New York 14853
James A. Rappold: School of Business, University of Wisconsin, Madison, Wisconsin 53706

Operations Research, 2007, vol. 55, issue 2, 303-318

Abstract: In the realm of service parts management, customer relationships are often established through service agreements that extend over months or years. These agreements typically apply to a piece of equipment that the customer has purchased, and they specify the type and timing of service that will be provided. If a customer operates in multiple locations, service agreements may cover several pieces of equipment at several locations. In this paper, we describe a continuous-review inventory model for a multi-item, multiechelon service parts distribution system in which time-based service-level requirements exist. Our goal is to determine base-stock levels for all items at all locations so that the service-level requirements are met at minimum investment. We derive exact time-based fill-rate expressions for each item within its distribution channel, as well as approximate expressions for the gradients of these fill-rate functions. Using these results, we develop an intelligent greedy algorithm that can be used to find near-optimal solutions to large-scale problems quickly, as well as a Lagrangian-based approach that provides both near-optimal solutions and good lower bounds with increased computational effort. We demonstrate the effectiveness and scalability of these algorithms on three example problems.

Keywords: inventory/production; multiechelon; multi-item; service-level constraints; heuristics (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (17)

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