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

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.Spare Parts, Inventory Management, Reverse Logistics, Final Order

Capacity Reservation under Spot Market Price Uncertainty

The traditional way of procurement, using long-term contract and capacity reservation, is competing with the escalating global spot market. Considering the variability of the spot prices, the flexibility of combined sourcing can be used to benefit from occasional low short-term spot price levels while the long-term contract is a means to hedge the risk of high spot market price incidents. This contribution focuses on the cost-effective management of the combined use of the above two procurement options. The structure of the optimal combined purchasing policy is complex. In this paper we consider the capacity reservation - base stock policy to provide a simple implementation and comparison to single sourcing options. Our analysis shows that in case of large spot market price variability the combined sourcing is superior over spot market sourcing even in case of low average spot market price and also superior over long-term sourcing even in case of high average spot market price.Capacity reservation; spot market; purchasing policy; supply chain contracts; stochastic inventory control

Setup Cost Reduction and Supply Chain Coordination in Case of Asymmetric Information

Screening contracts are a common approach to solve supply chain coordination problems under asymmetric information. Previous research in this area shows that asymmetric information leads to supply chain coordination deficits. We extend the standard framework of lotsizing decisions under asymmetric information by allowing investments in setup cost reduction. We find that asymmetric information leads to an overinvestment in setup cost reduction. Yet, the overall effect on supply chain performance is ambiguous. We show that these results holds for a wide variety of investment functions.

Production planning and control of closed-loop supply chains

More and more supply chains emerge that include a return flow of materials. Many original equipment manufacturers are nowadays engaged in the remanufacturing business. In many process industries, production defectives and by-products are reworked. These closed-loop supply chains deserve special attention. Production planning and control in such hybrid systems is a real challenge, especially due to increased uncertainties. Even companies that are engaged in remanufacturing operations only, face more complicated planning situations than traditional manufacturing companies.We point out the main complicating characteristics in closed-loop systems with both remanufacturing and rework, and indicated the need for new or modified/extended production planning and control approaches. An overview of the existing scientific contributions is given. It appears that we only stand at the beginning of this line of research, and that many more contributions are needed and expected in the future.closed-loop supply chains;Production planning and control

The structure of the optimal combined sourcing policy using capacity reservation and spot market with price uncertainty

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot-market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price, reservation level and capacity reservation cost. Considering a multiperiod problem with stochastic demand, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming.Capacity reservation, spot market, purchasing policy, supply contracts, stochastic inventory control

The Impact of Cheap Talk on Supply Chain Performance in Case of Asymmetric Information: An Experimental Investigation

The use of screening contracts is a common approach to solve supply chain coordination problems under asymmetric information. One major assumption in this context is that subjects will rather use their private information strategically than to reveal them truthfully, if they do not get any incentives to do this. This harms supply chain performance. This paper investigates the influence of costless pre-game communication (i.e. communication without any direct incentives) between a supplier and a buyer in a lotsizing framework. A laboratory experiment was conducted to test, whether this costless pre-game communication has (in contradiction to standard game-theory) an influence on supply chain coordination.experimental economics, screening contracts, supply chain coordination

Safety Stocks in Centralized and Decentralized Supply Chains under Different Types of Random Yields

Safety stock planning with focus on risk protection to cope with demand uncertainties is a very well researched topic in the field of supply chain management, in central as well as in local decision making systems. In contrast, there is only few knowledge about safety stock management in situations where supply risks have to be covered that are caused by uncertainties with respect to production yields. In this study, a two-stage manufacturer-retailer supply chain is considered in a single-period context that allows for an analytical study of the impact of yield randomness on safety stock determination. In order to concentrate the analysis on the effects of yield uncertainty demand will be assumed to be deterministic. We consider three basic types of yield randomness which represent different reasons for yield losses in production processes each, namely the stochastically proportional, binomial, and interrupted geometric yield type. It will be shown that these different yield risk specifications can bring about completely different properties with regard to the way safety stocks depend on various input parameters in supply chain planning. This holds especially for the impact of the demand size and for the influence of the level of product profitability in a supply chain. In an analytical model-based investigation it is demonstrated that these safety stock properties not only differ between the respective yield types, but also between systems of central and decentralized supply chain decision making. Thus, this study presents general insights into the importance of a correct yield type specification for an effective safety stock management and explains necessary differences in the stock distribution across supply chain stages in both centralized and decentralized settings

«Die hohen Standards machen die Knospe stark und wertvoll»

Coop-Chef Joos Sutter spricht zum 25-Jahr-Jubiläum von Naturaplan über die strengen Knospe-Standards, den Wert von Nahrungsmitteln und die Wachstumspläne im Biosektor

«Ses normes élevées rendent le Bourgeon fort et précieux»

À l’occasion des 25 ans de Naturaplan,le Directeur de la Coop Joos Sutter parle des normes élevées du Bourgeon, de la valeur des denrées alimentaires et des plans de croissance du secteur bio

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

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