How to Change a Running System-Controlling the Transition to Optimized Spare Parts Inventory Policies

Inventory optimization approaches typically optimize steady-state performance, but do not consider the transition of an initial state to the optimized state. In this study, we address this transition. Our research is motivated by a company that implemented an improved inventory policy for its spare parts division. The improved policy suggested new base stock levels for the majority of the parts. For parts with increased base stock levels, inventory increases were realized after the part lead times, but for low-demand parts with decreased base stock levels, inventory reductions were slow. As a result, inventory cost increased over the first months after the new inventory policy had been introduced and exceeded the inventory budget substantially. To avoid such undesirable effects, base stock level changes must be phased in. We consider a multi-item spare parts inventory system, initially operating under an item approach inventory policy that achieves identical fill rates for all parts. Our approach addresses the transition to a superior system approach inventory policy that maximizes the system fill rate. We model the inventory transition as a finite-horizon optimization problem and apply column generation and a marginal analysis heuristic to determine transient base stock levels for all parts. Using data from the company that motivated our research, we illustrate how the transition can be controlled to quickly improve fill rates without exceeding the initial inventory budget.

Automated summary

Inventory optimization approaches often focus on steady-state performance and may overlook the transition from an initial state to the optimized state. This study addresses the issue by proposing a phased approach to changing base stock levels in order to avoid undesirable effects. By modeling the inventory transition as a finite-horizon optimization problem and applying specific methods, it is possible to control the transition process effectively and improve fill rates without exceeding the initial inventory budget.