Basic Spare Parts Inventory Models

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. This chapter introduces the basic inventory planning and optimization models under both continuous and periodic review policy. It overviews the inventory models based on review policy and demand patterns. The chapter presents the economic order quantity (EOQ) and newsvendor models as both form the foundation of inventory theory. It introduces the continuous review model with stochastic demand and presents an approximation solution to the periodic review model. The chapter introduces the concept of an installed base driven inventory planning model and discusses spare parts demand forecasting with the focus on the installed base concept. Inventory systems prevail in process manufacturing, discrete/repetitive production, service parts logistics, product and goods distributors, and repair and maintenance services.