We present a problem on risk pooling and cost allocation in inventory of spare parts motivated in the oil and gas sector. Spare parts are held to facilitate operational conditions. Multiple inventory plants control their stock per separate. In practice, however, they supply each other when needed. Risk pooling is a source of savings in this situation. Under a centralized inventory solution, the...

Risk pooling has been studied extensively in the operations management literature as the basic driver behind strategies such as transshipment, manufacturing flexibility, component commonality, and drop-shipping. This paper explores the benefit of risk pooling in the context of inventory management using the canonical model first studied in Eppen (1979). Specifically, we consider a single-period...