The impact of an emergency warehouse in a two-echelon spare parts network

Because of high downtime costs of capital goods, it is becoming increasingly more important to have spare parts available as fast as possible. In order to ensure this, companies are resorting to the use of so-called lateral and emergency shipments in case the stock is not available at the closest local warehouse. As a result, managing the inventory of spare parts in a large network becomes increasingly more complex. In this paper we present a spare parts inventory model for a two-echelon spare parts network with lateral and emergency shipments and an emergency warehouse which is intended to allow for reserving stock nearby the central warehouse dedicated to emergency requests. Although any sequence is possible, the order is commonly fixed as it is based on the time and thus costs to get a part from each other location to the customer. We first present an accurate approximate procedure to evaluate such a complex network. Using simulation we find that this approximate evaluation procedure is accurate, especially for higher availability levels. We then look at optimized basestock levels, obtained via a smart enumeration procedure, to show the benefit of making use of this emergency warehouse. We find that savings up to 30% can be obtained via an emergency warehouse.