Service Parts Inventory Control with Lateral Transshipment and Pipeline Stock Flexibility

In equipment-intensive industries such as truck, electronics, aircraft and dredging vessel manufacturing, service parts are often slow moving items for which, in some cases, the transshipment time is not negligible. However, this aspect is hardly considered in the existing service logistics literature. In this paper, we consider this aspect and propose a customer-oriented service measure which takes into account pipeline stock and lateral transshipment flexibility. We provide an approximation method for optimizing the stock allocation subject to this service measure. Via extensive numerical experiments, we show that our approximation performs very well for both system performance and costs. Moreover, our numerical experiments show that including lateral transshipment and pipeline stock flexibility in inventory decisions is more beneficial than lateral transshipment alone. The magnitude of this effect is higher for high demand rates and high lateral transshipment cost. Results from a case study in the dredging industry confirm our findings. We therefore recommend the introduction of the pipeline stock information such as the track and trace information from freight carriers in existing ERP systems