Reducing costs of spare parts supply systems via static priorities

We study static repair priorities in a system consisting of one repair shop and one stockpoint, where spare parts of multiple, critical repairables are kept on stock to serve an installed base of technical systems. Demands for ready-for-use parts occur according to Poisson processes, and are accompanied by returns of failed parts. The demands are met from stock if possible, and otherwise they are backordered and fulfilled as soon as a ready-for-use part becomes available. Returned failed parts are immediately sent into repair. The repairables are assigned to static priority classes. The repair shop is modeled as a single-server queue, where the failed parts are served according to these priority classes. We show that under a given assignment of repairables to priority classes, optimal spare parts stock levels follow from Newsvendor equations. Next, we develop fast and effective heuristics for the assignment of repairables to priority classes. Subsequently, we compare the performance of the system under these static priorities to the case with a First-Come First-Served (FCFS) service discipline. We show that in many cases static priorities reduce total inventory holding and backordering costs by more than 40%. Finally, we analyse the effect of the number of priority classes. We show that 2 priority classes suffice to obtain 90% of the maximal savings via static priorities.