A periodic review inventory system with two supply modes

Abstract

We describe a periodic review inventory system in which there are two modes of resupply, namely a regular mode and an emergency mode. Orders placed through the emergency channel have a shorter supply lead time but are subject to higher ordering costs compared to orders placed through the regular channel. We analyze this problem within the framework of an order-up-to-R inventory control policy. At each review epoch, the inventory manager must decide which of the two supply modes to use and then order enough units to raise the inventory position to a level R. We show that given any non-negative order-up-to level, either only the regular supply mode is used, or there exists an indifference inventory level such that if the inventory position at the review epoch is below the indifference inventory level, the emergency supply mode is used. We also develop procedures for solving for the two policy parameters, i.e., the order-up-to level and the indifference inventory level.