An order expediting policy for continuous review systems with manufacturing lead-time

Abstract

Expedited shipments are often seen in practice. When the inventory level of an item gets dangerously low after an order has been placed, material managers are often willing to expedite the order at extra fixed and/or variable costs. This paper proposes a single-item continuous-review order expediting inventory policy, which can be considered as an extension of ordinary (s,Q) models. Besides the two usual operational parameters: reorder point s and order quantity Q it consists of a third parameter called the expedite-up-to level R. If inventory falls below R at the end of the manufacturing lead-time, the buyer can request the upstream supplier to deliver part of an outstanding order via a fast transportation mode. The amount expedited will raise inventory to R, while the remaining order is delivered via a slow (regular) supply mode. Simple procedures are developed to obtain optimal operational parameters. Computational results show that the proposed policy can save large costs for a firm if service level is high, demand variability is large, the extra cost for expediting is small, or the manufacturing lead-time is long. (C) 2009 Elsevier B.V. All rights reserved.