Reserve stock models: Deterioration and preventive replenishment

Bacel Maddah, Ali A. Yassine, Moueen K. Salameh, Lama Chatila

    Research output: Contribution to journalArticlepeer-review

    15 Scopus citations

    Abstract

    Reserve stocks are needed in a wide spectrum of industries from strategic oil reserves to tactical (machine buffer) reserves in manufacturing. One important aspect under-looked in research is the effect of deterioration, where a reserve stock, held for a long time, may be depleted gradually due to factors such as spoilage, evaporation, and leakage. We consider the common framework of a reserve stock that is utilized only when a supply interruption occurs. Supply outage occurs randomly and infrequently, and its duration is random. During the down time the reserve is depleted by demand, diverted from its main supply. We develop optimal stocking policies, for a reserve stock which deteriorates exponentially. These policies balance typical economic costs of ordering, holding, and shortage, as well as additional costs of deterioration and preventive measures. Our main results are showing that (i) deterioration significantly increases cost (up to 5%) and (ii) a preventive replenishment policy, with periodic restocking, can offset some of these additional costs. One side contribution is refining a classical reserve stock model (Hansmann, 1962).

    Original languageEnglish
    Pages (from-to)64-71
    Number of pages8
    JournalEuropean Journal of Operational Research
    Volume232
    Issue number1
    DOIs
    StatePublished - 1 Jan 2014

    Keywords

    • Deterioration
    • Inventory control
    • Preventive replenishment
    • Reserve stock
    • Supply interruption

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