¹Ben-Gurion University of the Negev, Beer-Sheva, Israel

Correspondence: Professor A Mehrez, Industrial Engineering and Management, Ben-Gurion University of the Nagev, Beer-Sheeva 84105, Israel. E-mail: mehrez@bgumail.bgu.ac.il

Received April 1999; Accepted September 2000.

Abstract

Inventory systems with limited repair capacity are affected by congestion externalities, caused by use of a shared service. There is incompatibility between individual and system optimisation in considering congestion externalities. Three models are described that investigate the congestion effect in a multi-echelon inventory system which has two modes of repair, each with a limited repair capacity. An expanding repair policy employed by the bases in order to choose which repair mode to use is described and compared with different expediting policies related to congestion externalities. The expanding repair policy that considers congestion externalities was found to lead to better system performance measurement than an expanding policy with no congestion. The results of the numerical experiment indicate that the model that ignores congestion externalities—that is, the model that measures each base as an individual—leads to poorer performance measurement for every expediting repair policy, and particularly for the optimal expediting repair policy.