Customer dedicated facilities and inventory sharing in integrated network design and inventory optimization

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Title: Customer dedicated facilities and inventory sharing in integrated network design and inventory optimization
Author: Iyoob, Ilyas Mohamed, 1984-
Abstract: Shrinking profit margins in the high technology industry has led companies to attempt to increase profits through an increased focus on after -market services . As part of that effort , service parts logistics , which manages the post -sales distribution of spare parts needed to maintain and repair products in use , has gained importance . In an effort to improve Service Parts Logistics (SPL ) operations , we integrate facility location and inventory stocking decisions while classifying facilities based on their assignment ; dedicated facilities that are assigned solely to individual customers (located on -site of the customer , serving only that customer ) , and shared facilities that are assigned to a subset of customers . The introduction of dedicated facilities simplifies the overall problem formulation in certain special cases . In one such special case where there is only one facility and none of the customers are within its service time window , the overall problem reduces to a binary knapsack formulation . This can be solved in pseudo -polynomial time through the dynamic programming algorithm for such problems . Nonetheless , even in the general case , we identify conditions under which a dedicated facility will always be opened . Computational results show that this observation is used by solvers as a preprocessing step , thus loosening some hard constraints . As a result , some of these problems are solved in less time than the corresponding problems without the dedicated facilities . However , dedicated facilities become advantageous mainly in sparse networks as opposed to dense networks . Apart from low network density , low holding cost and relatively high demand are two other system parameters that encourage the opening of dedicated facilities . SPL can be further improved by sharing inventory across shared facilities , which is already a common practice in real SPL systems . In this case , Markov chains can be used to estimate fill rates , but the process is iterative . However , under the low demand assumption of parts in SPL , we derive analytical formulae of estimating fill rates and thus incorporate inventory sharing within the network design and inventory optimization model . Special cases of this problem can be solved by an alternative binary knapsack formulation . Computational results show that large instances can be solved instantaneously , and we also identify a greedy heuristic that provides bounds on average within 0 .12 % of the optimal solution . We observe maximum benefit from inventory sharing when there exists large demand in the area overlapping the time window of both shared facilities and when inventory replenishment rates are high . However , we also identify conditions on the system parameters where inventory sharing could increase cost and /or decrease service in comparison with not -sharing . The combined problem of inventory sharing with customer dedicated facilities is formulated based on a binary knapsack structure . However , the problem size increases exponentially with solution time . Therefore , we construct another greedy heuristic by combining the inventory sharing heuristic and a special case algorithm for a single dedicated facility . A large size problem that takes almost a minute to be solved by conventional branch and bound is solved in less than a second using the greedy heuristic . We also show that for a given demand network , the combined problem achieves 40 -60 % reduction in total cost within 1 % of the time taken by the problem without inventory sharing and without dedicated facilities . Another interesting result is that in some cases , adding new customers to a given inventory sharing system helps to reduce the cost and /or increase service .
URI: http : / /hdl .handle .net /2152 /3256
Date: 2008-08-28


Customer dedicated facilities and inventory sharing in integrated network design and inventory optimization. Doctoral dissertation, The University of Texas at Austin. Available electronically from http : / /hdl .handle .net /2152 /3256 .

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