Optimal stock allocation in single echelon inventory systems subject to a service constraint

number: 011-0137 Optimal stock allocation in single echelon inventory systems subject to a service constraint Annalisa Cesaro • Dario Pacciarelli • Dipartimento di Informatica e Automazione, Università Roma Tre, Via della Vasca Navale, 79, Rome I-00146, Italy [email protected] • [email protected] • phone:0039-06-57333394 POMS 20th Annual Conference Orlando, Florida U.S.A. May 1 to May 4, 2009 This paper deals with spare optimization in multi-location inventory systems with single item and repairable spare parts. Lateral and emergency shipments occur in response to stockouts. A continuous review basestock policy is assumed for the inventory control of the spare parts. The resulting model is a queueing network with blocking, which can be studied using a Markov chain modeling approach. The objective is to minimize the total costs for inventory holding, lateral transshipments and emergency shipments subject to a target level of operational availability of the whole system. We model the stock allocation problem as a non linear integer program and exploit its special structure to design a primal-based and dual-based algorithm. Our solution procedure is based on a convergent Lagrangian and objective level cut method. Computational experiments, carried on practical data from an airport equipment maintenance context show that this method finds an optimal allocation for all practical instances for which the optimum is known.