A static-dynamic strategy for spare part inventory systems with nonstationary stochastic demand

Abstract

Inventory control is especially difficult when demand is stochastic and nonstationary. We consider a spare part inventory control problem with multiple-period replenishment lead time, and describe a static-dynamic strategy for the problem. By solving a static-dynamic uncertainty model, the strategy first makes decisions on the replenishment periods and order-up-to-levels over the planning horizon, but implements only the decisions of the first period. It then uses the rolling horizon approach in the next period when the inventory status is revised, and the multi-period problem is updated as better forecasts become available. In light of structural property of the developed static-dynamic uncertainty model, the optimal solution to the model can be obtained without much computational effort and thus the strategy can be easily implemented. Computational experiments and result of a case study verify the efficacy of the proposed strategy. © 2009 Operational Research Society Ltd.