Determining Optimal Order Amount for End-of-Life Parts Acquisition with Possibility of Contract Extension

Abstract

Manufacturers often encounter difficulties in supplying an adequate number of spare parts for a product in its postproduction phase. As a result, manufacturers will sometimes make one final order of a model of spare part that is used to satisfy any demand for the spare part going forward. The problem is compounded when a customer may request an extension to the maintenance or supply contract for which the part is supplied. We present two possible approaches for dealing with the problem: one involves the use of a continuous-time dynamic program that allows for the possibility of salvage, and the other makes use of a two-stage stochastic algorithm that does not consider salvage.

Last time buy and repair decisions for spare parts

“…Leifker et al (2012) study LTB problems in a continuous setting without any service period restriction, while there is limited information on the customers, and the only alternative is buying a part. Leifker et al (2014) consider possibilities for service contract extension when computing the final order quantity. Table 1 shows that retrieving parts from dismantling phased-out systems has received the most attention as alternative source in the literature.…”

End-of-life inventory management problem: Results and insights

“…On the other hand, complementary strategies aim to support the final buy in case of a discrepancy between the realized demand and the order quantity. The wide literature on business strategies complementing a final order includes, but is not limited to, repairing defective spare parts collected from customers (Behfard et al, 2015(Behfard et al, , 2018 while repairing may not be feasible for some of them (van Kooten and Tan, 2009), buying back functional or dysfunctional used products to take them apart and obtain the recoverable spare parts (Pourakbar et al, 2014;Kleber et al, 2012), considering budget constraints (Hur et al, 2018) or multiple spare parts in the bill-of-materials of a main product (Bradley and Guerrero, 2009), extending customer contracts (Pinçe et al, 2015;Leifker et al, 2014), designing a new product to replace the obsolete one (design refresh) (Shen and Willems, 2014;Shi and Liu, 2020), partially scrapping spare parts in case of over-stocking , differentiating customers based on demand criticality or service contracts , re-manufacturing (Shi, 2019;Bayındır et al, 2007), finding outside/alternative sources Frenk et al, 2019a;van der Heijden and Iskandar, 2013;Jack and Van der Duyn Schouten, 2000), and finally, obviating the need to place a final order at time zero (Cattani and Souza, 2003;Teunter and Haneveld, 2002;Pinçe and Dekker, 2011). Common to all the studies above is the fact that the end-of-life management problem considered is more than an inventory problem and hence several actions should be considered simultaneously.…”

Discontinued Products - An Empirical Study of Service Parts Management

“…Wang and Syntetos (2011) presented an innovative idea to forecast demand for spare parts that relies upon the demand generation process itself, comparing it successfully with a traditional timeseries method. Leifker et al (2014) presented two approaches for dealing with the problem of extending maintenance or supply contracts for spare parts of discontinued products: one includes the use of a continuous-time dynamic program and the other makes use of a two-stage stochastic algorithm. Rego and Mesquita (2015) presented a case study on spare parts inventory management, comparing several methods using different forecasting techniques and inventory management policies by simulating with field data (10 032 spare parts references); results of the simulations allowed the recommendation of best…”