A heuristic for triggering emergency orders in an inventory system |
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Authors: | Sven Axsäter |
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Affiliation: | Department of Industrial Management and Logistics, Lund University, P.O. Box 118, 22100 Lund, Sweden |
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Abstract: | This paper considers a single-echelon inventory system with a warehouse facing compound Poisson customer demand. Normally the warehouse replenishes from an outside supplier according to a continuous review reorder point policy. However, it is also possible to use emergency orders. Such orders incur additional costs but have a much shorter lead time. We consider standard holding and backorder costs as well as ordering costs. A heuristic decision rule for triggering emergency orders is suggested. The decision rule minimizes the expected costs under the assumption that there is only a single possibility for an emergency replenishment, but the rule is used repeatedly as a heuristic. Given a certain reorder point policy for normal replenishments, our decision rule will always reduce the expected costs. A simulation study illustrates that the suggested technique performs well under different conditions. |
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Keywords: | Inventory control Emergency supply Stochastic |
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