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Designing multi-echelon service parts networks with finite repair capacity

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  • Rappold, James A.
  • Van Roo, Ben D.

Abstract

We propose an approach to model and solve the joint problem of facility location, inventory allocation and capacity investment in a two echelon, single-item, service parts supply chain with stochastic demand. The objective of the decision problem is to minimize the total expected costs associated with (1) opening repair facilities, (2) assigning each field service location to an opened facility, (3) determining capacity levels of the opened repair facilities, and (4) optimizing inventory allocation among the locations. Due to the size of the problem, computational efficiency is essential. The accuracy of the approximations and effectiveness of the approach are analyzed with two numerical studies. The approach provides optimal results in 90% of scenarios tested and was within 2% of optimal when it did not.We explore the impact of capacity utilization, inventory availability, and lead times on the performance of the approach. We show that including tactical considerations jointly with strategic network design resulted in additional cost savings from 3% to 12%. Our contribution is the development of a practical model and approach to support the decision making process of joint facility location and multi-echelon inventory optimization.

Suggested Citation

  • Rappold, James A. & Van Roo, Ben D., 2009. "Designing multi-echelon service parts networks with finite repair capacity," European Journal of Operational Research, Elsevier, vol. 199(3), pages 781-792, December.
    • Handle: RePEc:eee:ejores:v:199:y:2009:i:3:p:781-792
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    References listed on IDEAS

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    1. Kathryn E. Caggiano & John A. Muckstadt & James A. Rappold, 2006. "Integrated Real-Time Capacity and Inventory Allocation for Reparable Service Parts in a Two-Echelon Supply System," Manufacturing & Service Operations Management, INFORMS, vol. 8(3), pages 292-319, August.
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    7. Izack Cohen & Morris A. Cohen & Elad Landau, 2017. "On sourcing and stocking policies in a two-echelon, multiple location, repairable parts supply chain," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(6), pages 617-629, June.
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