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A (Q, R) inventory replenishment model with two delivery modes

Abstract:

Although splitting shipments across multiple delivery modes typically increases total shipping costs as a result of diseconomies of scale, it may offer certain benefits that can more than offset these costs. These benefits include a reduction in the probability of stockout and in the average inventory costs. We consider a single-stage inventory replenishment model that includes two delivery modes: a cheaper, less reliable mode, and another, more expensive but perfectly reliable mode. The high-reliability mode is only utilized in replenishment intervals in which the lead time of the less-reliable mode exceeds a certain value. This permits substituting the high-reliability mode for safety stock, to some degree. We characterize optimal replenishment decisions with these two modes, as well as the potential benefits of simultaneously using two delivery modes. © 2014 Elsevier B.V. All rights reserved.