A risk balancing policy for preventive lateral transshipment in multi-echelon inventory systems of the wind energy industry

Wind turbine manufacturers often employ a multi-echelon inventory system with multiple central warehouses to address distributed demands of spare parts. Preventive lateral transshipment (PLT) among the central warehouses enables efficient cost control at a specific service level. The risk balancing (RB) policy is a strategic approach of PLT that effectively mitigates the stock-out risk of warehouses by considering both the mean and variance of future demand. However, the current RB policy encounters two primary challenges. First, only the single-echelon inventory system is considered. Second, the number of warehouses is restricted to fewer than four to facilitate the enumeration of PLT scenarios and the calculation of transshipment quantities. This study proposes a multi-echelon risk balancing (MERB) policy for large-scale multi-echelon inventory systems in the context of spare parts management in the wind energy industry. MERB derives closed-form expressions for both the mean and variance of future demand at a central warehouse. Furthermore, a general model based on a system of linear equations is established for large-scale multi-echelon inventory systems with PLT. The closed-form expressions of transshipment quantities are derived by solving the system of linear equations when there is only one warehouse requesting PLT or one rationing warehouse. In other scenarios, transshipment quantities are determined by solving an optimization model constrained by the established general model in MERB. Finally, the effectiveness of the proposed MERB policy is validated through a practical example in the wind energy industry; results demonstrate that, compared with existing PLT policies, MERB can reduce costs by 8%.