Benefits of considering inventory in service parts logistics network design problems with time-based service constraints

Abstract

We study the integrated logistics network design and inventory stocking problem as characterized by the interdependency of the design and stocking decisions in service parts logistics. These two sets of decisions have been usually considered sequentially in practice, and the associated problems have been tackled separately in the research literature. The overall problem is typically further complicated due to time-based service constraints that provide lower limits for the percentages of demand satisfied within specified time windows. We introduce an optimization model that explicitly captures the interdependency between network design (location of facilities, and allocation of demands to facilities) and inventory stocking decisions (stock levels and their corresponding stochastic fill rates), and present computational results from our extensive experiments that investigate the effects of several factors including demand levels, time-based service levels, and costs. We show that the integrated approach can provide significant cost savings over the decoupled approach (solving the network design first and inventory stocking next), shifting the whole efficient frontier curve between cost and service level to superior regions. We also show that the decoupled and integrated approaches may generate totally different solutions, even in the number of located facilities and in their locations, magnifying the importance of considering inventory as part of the network design models.

Spare parts logistics and installed base information

“…Simultaneously, there are developments regarding the computational complexity of the intended class of optimization model (i.e., Single Item -Single Echelon Model). Candas et al (2007) has shown that the model could be efficiently solved within reasonable timeframes by using advanced heuristics solution methods. However, the potential economic value that could be generated by using detailed data is unaddressed in literature for the intended planning model.…”

“…A simplified version of the model that incorporates its main characteristics is depicted in Appendix A. Briefly described, the model follows the optimization logic of Single Echelon -Single Commodity Model (Giani et al, 2004) with additional time based constraints (Candas et al, 2007). The optimization model is a Mixed Integer Program that uses the customer locations, part's unit price, demand rates, travel times, handling and transportation costs as input data.…”

“…IBM spare parts logistics is a frequently cited case in academic literature as an example of the state of the art in spare parts logistics operations (Cohen et al, 1990;Cohen et al, 1997, Fleischmann et al 2003, Candas et al 2007and Kutanoglu, 2008). Similar to other spare parts situations, the primary question that IBM encounters is the placement of spare part inventories in its service network (Cohen et al, 2006).…”

A survey of maintenance and service logistics management: Classification and research agenda from a maritime sector perspective

“…In particular, the design factors considered in the literature include logistic network design, capacity investment, part supplier selection, and transportation modes selection (see, e.g., [142,143,144,145,146]). The literature shows that a comprehensive inclusion of such design factors with the spare parts inventory optimization problem requires significant computational efforts.…”

System-oriented inventory models for spare parts

“…Candas and Kutanoglu (2007), for instance, solve the joint problem by linearizing fill rate functions and then solving the resulting mixed integer linear programming formulation. Rappold and Van Roo (2009) use a two-step approach: the first step consists mainly of the facility location problem whereas the second step considers the spare parts inventories.…”