A new replenishment policy based on emergency orders for a family of products

This paper considers a two-echelon supply chain with several distribution centres (DCs) and a number of retailers or consumption centres (CCs). Several products are managed and supplied in this chain, but we focus on a family of perishable products (drugs) with a high cost, particularly variable demand and transiting from the same supplier to the same consumption centres. We also assume that the suppliers have an unlimited stock, the delivery time is close to zero (a few hours) and shortages are not authorised at the CCs. In this case, where the constitution of a large safety stock (SS) is not cost-effective, we propose a new ordering policy based on 'replenishment driven by shortage'. This method consists in waiting for a shortage of one product, triggering an emergency order for this product and, at the same time, replenishing other items of the same family. This replenishment policy is based on the mathematical function for calculating the optimal level of each product of the same family by using the probability of not having any shortage before time t. Numerical experimentation compares the total expected costs of the proposed method with a traditional order-up-to-level policy.