An inventory system with periodic regular review and flexible emergency review

Abstract

We analyze a discrete time inventory model with two supply modes. Regular orders are placed periodically and arrive after a deterministic lead time. Emergency orders, characterized by a shorter deterministic lead time bus higher purchase costs, can be placed in case of imminent stock-outs. We propose and analyze more flexible order-up-to policies with emergency orders that arrive one, two, …, up to some fixed number of time units before a regular order arrives. Based on an approximate cost model, we develop two sets of approximate closed-from optimality conditions. The first set of conditions are rather complicated, but simulation shows that they do lead to near-optimal policies in most cases. The second set of conditions are very simple and seem more practical, but they only lead to a near-optimal policy if there are enough emergency supply opportunities in a review period to prevent most backorders.