9Basic Spare Parts Inventory Models

9.1 Introduction

An inventory system is like a battery energy storage system that deals with charging and discharging of electricity. When items are taken out of the inventory to meet customer demand, it behaves like discharging energy from the battery. When the inventory reaches a low level and is replenished with new items, it is similar to recharging energy into a battery. Therefore, inventory planners address two fundamental questions: when to order and how much is needed for replenishment? Inventory costs include purchasing, ordering, holding, and backorders. Lead time plays a critical role in stochastic inventory management because it is directly correlated with inventory performance, such as the probability of stockout, fill rate, and expected backorders. In this chapter, we introduce the basic inventory planning and optimization models under both continuous and periodic review policy. Section 9.2 overviews the inventory models based on review policy and demand patterns. Sections 9.3 and 9.4 present the economic order quantity (EOQ) and newsvendor models as both form the foundation of inventory theory. Section 9.5 introduces the (q, r) continuous review model with stochastic demand. Section 9.6 presents an approximation solution to the (s, S, T) periodic review model. Section 9.7 introduces the concept of an installed base driven inventory planning model. Section 9.8 discusses spare parts demand forecasting with the focus on the installed ...

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