Multi-mode replenishment strategies for periodic-review in 2-echelon systems under seasonal demand

Abstract

Purpose: This paper investigates the impact of special replenishing modes within a 2-echelon inventory system under seasonal demand.  Within this system, a periodic-review base-stock policy is employed. Two special replenishing modes are considered: emergency and transshipment in addition to a regular mode. The regular mode serves as the primary replenishment method, while emergency and transshipment modes, characterized by shorter lead times and higher costs, are reserved to prevent stockouts. It specifically examines the differences in outcomes between static and dynamic ordering policies for these special modes.

Design/methodology/approach: Methodologies to determine static and dynamic policies of two special replenishments: emergency and transshipment are proposed. Both emergency and transshipment replenishments are based on.  A simulation method was used to evaluate the proposed policies.

Findings: Special modes can be used to maintain service level while utilizing a lower safety stock, thereby reducing overall holding cost.  The 60% higher frequency of emergency orders under static policies compared to dynamic policies leads to a lower number of transshipment orders.  For short cycles with high per-period demand variability, the gap between static and dynamic policies shrinks, making static policies a viable, less-complex alternative.  Levels of demand fluctuations between periods impact a policy choice.  While dynamic policies may not provide a distinct advantage over static policies in low-fluctuation scenarios, they can yield cost savings in high-fluctuation environments, albeit with increased effort.

Practical implications: The result from this paper can be adopted to a 2-echelon inventory system with multiple replenishing modes under seasonal demand.  It can help inventory managers choose the appropriate policy for their situation.

Originality/value: This paper provides managerial insights regarding the circumstances in which static policy or dynamic policy should be applied and explores the relationship between regular and special replenishing modes in various circumstances.