Repairable Stocking and Expediting in a Fluctuating Demand Environment: Optimal Policy and Heuristics

Both service and manufacturing industries depend on the availability of expensive equipment to deliver their products. Examples of such equipment include aircraft, rolling stock and manufacturing equipment. When this equipment is not working, the primary processes of their owners come to an immediate stop. To reduce the downtime of equipment, companies stock critical components such that the equipment can be returned to an operational state quickly by replacing a defective component with a ready-for-use component. Many components represent a significant financial investment and so they are repaired rather than discarded after a defect occurs. Consider for example, jet engines, bogies, or lens units for wafer steppers; these are components of aircraft, rolling stock, and integrated circuit manufacturing equipment, respectively, and their prices range from several hundreds of thousands up to millions of dollars. The best time for companies to buy these components is early in the lifecycle of the original equipment, because, at this time, it is possible to negotiate reasonable prices. In the literature, this is often referred to as the initial spare parts supply problem and it occurs in many different environments (e.g. Rustenburg et al., 2001; Pérès and Grenouilleau, 2002). Also note that since such components are repairable, there is no natural inventory depletion that can reduce stock levels in case a company buys too many components. Later in the life cycle of a technical system, components often have to be custom made and prices are very steep, if the component can be purchased at all. An aggravating factor is that demand intensity for these components typically fluctuates over time, reflecting the fluctuating need for maintenance over time. Companies anticipate these demand fluctuations by leveraging the possibility of expediting the repair of defective components, rather than buying new components. Expediting a repair comes at a price, either because an external repair shop charges more for expedited repairs or because an internal repair shop can only handle a limited amount of expedited repairs. In the latter case, the