Optimal Policy for Expediting Orders in Transit

Recent globalization adds complexity to supply chains and increases lead times as goods travel through multiple locations around the globe. Under this changing environment a supply chain must be agile to respond quickly to demand spikes. One way to achieve this objective is by expediting outstanding orders from multiple locations in the supply chain through premium delivery, overtime work, or extra capacity available at a higher cost. We study the single-item periodic review stochastic inventory problem where outstanding orders may be expedited. For so-called sequential systems, in which expediting costs are convex, it is proved that expedited orders do not cross regular orders in time under the optimal policy. For sequential systems, we show that the optimal policy is the base stock type policy with respect to regular ordering and expediting. If a system is not sequential, orders may cross in time, thus optimal policies are hard to obtain. We propose a heuristic for such systems and discuss its performance and limitations.