An easily implementable hierarchical heuristic for a two-echelon spare parts distribution system

This paper addresses a two-echelon spare parts stocking and distribution sy stem consisting of a central Distribution Center (DC) and regional faciliti es. Because the primary purpose for holding inventory is to provide timely repairs of customer's equipment, we set as our objective to minimize total inventory investment subject to constraints on the delay due to parts outag es. We decompose the resulting problem by level and by facility. By simplif ying the expressions for the delay constraints and applying previously deve loped heuristics for the single-level problem [1], we are able to derive cl osed-form expressions for the inventory control parameters. We then develop a search algorithm (on DC fill rate) to approximate the parameters (Lagran ge multipliers) in the closed-form expressions. Numerical comparisons again st an analytic lower bound and, for small problems, exact solutions show th e approximation to be quite accurate. We also found that it outperforms met hods currently in use by the firm that motivated this work. Finally, becaus e it yields closed-form expressions for inventory control parameters and th e parameters are only updated periodically, the policy is "easily implement able'' once suitable Lagrange multipliers have been computed.