Spare Parts Inventory Control under a Fixed-Term Contract with a Long-Down Constraint

20 Pages Posted: 8 Mar 2019

See all articles by Douniel Lamghari-Idrissi

Douniel Lamghari-Idrissi

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Rob J.I. Basten

Eindhoven University of Technology (TUE)

Geert-Jan van Houtum

Eindhoven University of Technology (TUE)

Date Written: November 1, 2018

Abstract

We are interested in service contracts for spare parts. We introduce a new performance measure that limits the number of deliveries that are later than an agreed threshold during the contract period. We consider a single item, single location stockpoint serving multiple systems where demand is satisfied in an alternative way if the stockpoint is out of stock. Using a finite horizon Markov decision process, we characterize the optimal spare parts inventory policy for meeting the contract at minimum costs. We perform a numerical study to show the performance of the optimal policy in comparison to heuristics commonly used in practice. Our results show that the average optimality gap of those heuristics varies from 6.4% to 175%. The maximum optimality gaps are very high for all three heuristics. This shows that important savings can be made when taking into account the actual contract performance and the remaining contract duration in stocking decisions.

Keywords: spare parts inventory, service measure, Markov decision process, optimal policies, heuristic policies

Suggested Citation

Lamghari-Idrissi, Douniel and Basten, Rob J.I. and van Houtum, Geert-Jan, Spare Parts Inventory Control under a Fixed-Term Contract with a Long-Down Constraint (November 1, 2018). Available at SSRN: https://ssrn.com/abstract=3341439 or http://dx.doi.org/10.2139/ssrn.3341439

Douniel Lamghari-Idrissi (Contact Author)

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )

Den Dolech 2
Eindhoven
Netherlands

Rob J.I. Basten

Eindhoven University of Technology (TUE) ( email )

PO Box 513
Den Dolech 2
Eindhoven, 5600 MB
Netherlands

Geert-Jan Van Houtum

Eindhoven University of Technology (TUE) ( email )

PO Box 513
Eindhoven, 5600 MB
Netherlands

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