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An Advanced Heuristic for Multiple-Option Spare Parts Procurement after End-of-Production

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  • Karl Inderfurth

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Rainer Kleber

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

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    Abstract

    After-sales service is a major profit generator for more and more OEMs in industries with durable products. Successful engagement in after-sales service improves customer loyalty and allows for competitive differentiation through superior service like an extended service period after end of production during which customers are guaranteed to be provided with service parts. In order to fulfill the service guarantee in these cases, an effective and efficient spare parts management has to be implemented, which is challenging due to the high uncertainty concerning spare parts demand over such a long time horizon. The traditional way of spare parts acquisition for the service phase is to set up a huge final lot at the end of regular production of the parent product which is sufficient to fulfill demand up to the end of the service time. This strategy results in extremely high inventory levels over a long period and generates major holding costs and a high level of obsolescence risk. With increasing service time more flexible options for spare parts procurement after end of production gain more and more importance. In our paper we focus on the two most relevant ones, namely extra production and remanufacturing. Managing all three options leads to a complicated stochastic dynamic decision problem. For that problem type, however, a quite simple combined decision rule with order-up-to levels for extra production and remanufacturing turns out to be very effective. We propose a heuristic procedure for parameter determination which accounts for the main stochastic and dynamic interactions between the different order-up-to levels, but still consists of quite simple calculations so that it can be applied to problem instances of arbitrary size. In a numerical study we show that this heuristic performs extremely well under a wide range of conditions so that it can be strongly recommended as a decision support tool for the multi-option spare parts procurement problem.

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2010_Dateien/2010_05.pdf
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    Bibliographic Info

    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 100005.

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    Length: 34 pages
    Date of creation: Jan 2010
    Date of revision:
    Handle: RePEc:mag:wpaper:100005

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    Web page: http://www.ww.uni-magdeburg.de
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    Related research

    Keywords: Spare Parts; Inventory Management; Reverse Logistics; Final Order;

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    References

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    1. Teunter, Ruud H. & Klein Haneveld, Willem K., 2002. "Inventory control of service parts in the final phase," European Journal of Operational Research, Elsevier, vol. 137(3), pages 497-511, March.
    2. Thomas E. Morton & David W. Pentico, 1995. "The Finite Horizon Nonstationary Stochastic Inventory Problem: Near-Myopic Bounds, Heuristics, Testing," Management Science, INFORMS, vol. 41(2), pages 334-343, February.
    3. Kiesmuller, Gudrun P. & Scherer, Carsten W., 2003. "Computational issues in a stochastic finite horizon one product recovery inventory model," European Journal of Operational Research, Elsevier, vol. 146(3), pages 553-579, May.
    4. Rainer Kleber & Tobias Schulz & Guido Voigt, 2009. "Dynamic buy-back for product recovery in end-of-life spare parts procurement," FEMM Working Papers 09026, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    5. Cattani, Kyle D. & Souza, Gilvan C., 2003. "Good buy? Delaying end-of-life purchases," European Journal of Operational Research, Elsevier, vol. 146(1), pages 216-228, April.
    6. Sang-Hyun Kim & Morris A. Cohen & Serguei Netessine, 2007. "Performance Contracting in After-Sales Service Supply Chains," Management Science, INFORMS, vol. 53(12), pages 1843-1858, December.
    7. Karl Inderfurth & Kampan Mukherjee, 2008. "Decision support for spare parts acquisition in post product life cycle," Central European Journal of Operations Research, Springer, vol. 16(1), pages 17-42, March.
    8. Kennedy, W. J. & Wayne Patterson, J. & Fredendall, Lawrence D., 2002. "An overview of recent literature on spare parts inventories," International Journal of Production Economics, Elsevier, vol. 76(2), pages 201-215, March.
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