Emergency reserve stock models

Abstract

Reserve stocks are needed in a wide spectrum of industries from strategic oil reserves to tactical (machine buffer) reserves in manufacturing. One important aspect under-looked in research is the effect of deterioration, where a reserve stock, held for a long time, may be depleted gradually due to factors such as spoilage, evaporation, leakage, etc. We consider the common framework of a reserve stock that is utilized only when a supply interruption occurs. Supply outage occurs randomly and infrequently, and its duration is random. During the down time the reserve is depleted by demand, diverted from its main supply. We develop optimal stocking policies, for a reserve stock which deteriorates exponentially. These policies balance typical economic costs of ordering, holding, and shortage, as well as additional costs of deterioration and preventive measures. Our main results are showing that (i) deterioration significantly increases cost (up to 5percent), and (ii) a preventive replenishment policy, with periodic restocking, can offset some of these additional costs. One side contribution is refining a classical reserve stock model (Hannsman, 1962). From another side, the effects of perishability cannot be ignored for certain types of inventories, which may become unsuitable for consumption as time passes.Typical examples are fresh produce, blood cells, chemicals, drugs and other pharmaceuticals. The federal government maintains large quantities of medical supplies in stock as part of its Strategic National Stockpile (SNS) to protect the American public in case of a public health emergency. Therefore in this paper, we develop a mathematical model for one age model and we prove that it is a fair approximation for the exact model.We generate a simulation for the exact model. Finally, we propose a two ages model and proves that can be associated to Markov chains.