A continuous-review inventory model with multiple replenishment orders in the presence of regular demand and surge demand

In many cases we need to split the order among multiple suppliers to minimize greater risk of supply interruption. This paper proposes a continuous-review inventory system that captures the order split among multiple suppliers under regular demand and surge demand. The regular demand has a higher arrival rate with a lower demand volume whereas the surge demand has a lower arrival rate with a higher demand volume. An inventory policy with two order types, regular order and emergency order, is proposed responding to the two types of demand. Equilibrium equations are developed by using the level crossing theory to calculate the stationary distribution of inventory levels. The probability distribution is then used to calculate the long-run average cost per unit time for a given policy. A search based heuristics is developed to find near optimal policy.