Service differentiation in spare parts inventory management

Service differentiation in spare parts inventory management

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Article ID: iaor20097359
Country: United Kingdom
Volume: 59
Issue: 7
Start Page Number: 946
End Page Number: 955
Publication Date: Jul 2008
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: service
Abstract:

The contemporary after–sales market is of increasing importance. One of the features required by the market is to provide differentiated service levels to different groups of customers. We use critical levels as a means to offer differentiation. Critical level policies aim to exploit the differences in target service levels by inventory rationing. In our multi–item single–location spare parts inventory model, we aim to minimize the spare parts provisioning cost, that is inventory holding and transportation cost, under the condition that aggregate mean waiting time constraints for all customer groups are met. In a computational experiment and a case study with data from a company in the semiconductor supplier industry, we show that significant cost reductions can be obtained when critical level policies are used instead of base stock policies (i.e. policies without critical levels).

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