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Optimal stocking policies for low usage items in multi‐echelon inventory systems

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  • Morris A. Cohen
  • Paul R. Kleindorfer
  • Hau Leung Lee

Abstract

Multi‐echelon logistic systems are essential parts of the service support function of high technology firms. The combination of technological developments and competitive pressures has led to the development of services systems with a unique set of characteristics. These characteristics include (1) low demand probabilities: (2) high cost items; (3) complex echelon structures; (4) existence of pooling mechanisms among stocking locations at the same echelon level; (5) high priority for service, which is often expressed in terms of response time service levels for product groups of items: (6) scrapping of failed parts; and (7) recycling of issued stock due to diagnostic use. This article develops a comprehensive model of a stochastic, multi‐echelon inventory system that takes account of the above characteristics. Solutions to the constrained optimization problem are found using a branch and bound procedure. The results of applying this procedure to a spare parts inventory system for a computer manufacturer have led to a number of important policy conclusions.

Suggested Citation

  • Morris A. Cohen & Paul R. Kleindorfer & Hau Leung Lee, 1986. "Optimal stocking policies for low usage items in multi‐echelon inventory systems," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 33(1), pages 17-38, February.
    • Handle: RePEc:wly:navlog:v:33:y:1986:i:1:p:17-38
    DOI: 10.1002/nav.3800330103
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    Cited by:

    1. Daniel Y. Mo & Stephen C. H. Ng & David Tai, 2019. "Revamping NetApp’s Service Parts Operations by Process Optimization," Service Science, INFORMS, vol. 49(6), pages 407-421, November.
    2. Narendra Agrawal & Morris A. Cohen, 2001. "Optimal material control in an assembly system with component commonality," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(5), pages 409-429, August.
    3. Chui-Yu Chiu & Chen-Yang Cheng & Ting-Ying Wu, 2021. "Integrated Operational Model of Green Closed-Loop Supply Chain," Sustainability, MDPI, vol. 13(11), pages 1-14, May.
    4. Mohita Gangwar Sharma & K. N. Singh, 2017. "Servitization, Coopetition, and Sustainability: An Operations Perspective in Aviation Industry," Vikalpa: The Journal for Decision Makers, , vol. 42(3), pages 145-152, September.
    5. Yale T. Herer & Ayelet Rashit, 1999. "Lateral stock transshipments in a two‐location inventory system with fixed and joint replenishment costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 46(5), pages 525-547, August.
    6. Amy Cohn, 2006. "Composite-variable modeling for service parts logistics," Annals of Operations Research, Springer, vol. 144(1), pages 17-32, April.

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