Joint spare parts inventory and reliability decisions under a service constraint

Reliability and inventory levels of spare parts are major factors that determine the service level for the maintenance of machines provided by original equipment manufacturers (OEMs). In general, decisions on reliability and stock levels are made separately in practice, and academic literature offers little guidance on how to jointly make these two decisions. In order to fill in the gap in the literature and provide guidance to OEMs, we jointly model reliability and inventory problems. We consider three different service measures: aggregate fill rate, average downtime per system per year and expected total number of long downs in a year. Our models minimize the sum of holding and emergency shipment costs subject to a limited reliability improvement budget and a target service level. We develop an algorithm that considers reliability and inventory decisions simultaneously, test our solution approach on real‐life and randomly generated data sets and compare the results with an approach that considers reliability and inventory decisions sequentially. Numerical results show substantial benefits of integrating reliability and inventory decisions.