Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

7-2003

Publication Source

Operations Research

Volume

51

Issue

4

Start Page

518

Last Page

530

DOI

10.1287/opre.51.4.518.16099

Abstract

The question of how to effectively manage items with heterogeneous attributes and differing service requirements has become increasingly important to supply chains that support the delivery of after-sales service. However, there has been little investigation to date on how organizations actually manage inventory levels under such circumstances. This study provides such an investigation, focusing on the logistic system used to manage consumable service parts for weapon systems in the U.S. military. Our findings, based on interviews and rigorous analysis of part attribute and performance data, suggest that in practice a part's service level is negatively affected by an item's cost and is less affected by attributes such as its priority code. We introduce a simple inventory model to explain our empirical findings and explore how variations in item attributes can interact with an inventory policy to affect system performance. Based on this model, we recommend using explicit service-level targets for priority categories to achieve performance consistent with part priority. We show, using military data, that a service differentiation strategy can be an effective way of allocating inventory investment by providing higher service for critical parts at the expense of accepting lower service levels for parts with less importance.

Keywords

Military, cost effectiveness: service differentiation, Inventory, applications: service parts for weapon systems

 

Date Posted: 27 November 2017

This document has been peer reviewed.