End-of-life service

Producers of complex machines offer lasting service contracts to their customers. To be able to provide service, spare parts are held in stock. Since the service period is typically much larger than the production period, the service department places a large ‚final order’ for spare parts at the moment the machine is taken out of production. This final order is expected to last until all service contracts have ended. In this paper we deal with finding (close to) optimal final order quantities. The main result is the derivation of a close to optimal final order quantity, given by an explicit formula. Furthermore, we also determine ‚remove-down-to’ levels for spare parts. These levels are used to reduce cost by removing stock before all service contracts have expired. The effects of introducing remove-down-to levels on the expected cost and the optimal final order quantity are shown.