Stock Levels and Repair Sourcing in a Periodic Review Exchangeable Item Repair System

Background: Exchangeable item repair systems are inventory systems. A nonfunctional item is exchanged for a functional item and returns to the system after being repaired. In our periodic review setting, repair is performed either in-house or outsourced. When repair is in-house, a repaired item is returned to stock regardless of the repair status of the other items in its order. In contrast, with outsourced repair, the entire order must be repaired for it to return to stock. Methods: We develop formulas for the window fill rate (probability for a customer to be served within a given time window) to measure the system’s performance and compute it for each repair model. The cost of outsourcing is the difference between the number of spares needed to maintain a target performance level when repair is internal and when it is outsourced. Results and Conclusions: In our numerical example, we show that the window fill rate in both models is S-shaped in the number of spares and show how the graph shifts to the right when customer tolerance decreases and order cycle time increases. Further, we show that the cost of outsourcing is increasing with customer tolerance and with the target performance level.