An inventory pooling model for spare units of critical systems that serve multi-companies

• We develop an inventory pooling model to get the optimal number of companies which share the inventory of expensive and long life systems.
• We find the optimal value of emergency threshold to determine whether to place an emergence order or not.
• We do a series of analyses to show the influence of different variables on the expected cost.

In this paper, we present an inventory pooling model for spare units of critical systems that serve multi-companies. Companies located in the same geographical area can benefit from a coalition to share the storage cost of such spare units, which may be stored as one unit at only one company’s location. In our model, we combine the storage cost, replacement costs and downtime cost into a unified cost function, giving the expected cost per company per unit time as our objective function. We use two decision variables: the number of companies in the coalition; and the threshold to determine whether to place an emergency order or not, compared with the remaining ordinary order’s arrival time. We obtain an optimal solution with regard to these two decision variables under a certain cost structure. Our simulation method verifies the correctness of the model. A series of sensitivity analyses are also conducted to show which variable has the most influence on the expected cost.