Insights into inventory sharing in service parts logistics systems with time-based service levels

Service parts logistics systems are usually characterized by very low random demand, high part cost, and target time-based service levels, all of which lead inventory planners to utilize inventory sharing or “emergency lateral transshipments” across multiple stocking locations. Using a stylized model with one central warehouse and multiple local stocking locations, we seek insights into the behavior of an inventory sharing system with time-based service level considerations. The goal of inventory sharing is to satisfy a demand in case a local facility is out of stock, by meeting the demand with a direct delivery from another location that can provide the service within the time window necessary for the target service level. We adapt an existing model from the literature for such a system and study its performance in terms of cost and service level. In addition, we evaluate two-location and three-location scenarios to study the effect of having additional stocking locations.