A new methodology to optimize target stock level for unpredictable demand of spare parts: A Case Study in Business Aircrafts’ Industry

Abstract

The cost-effective management of spare parts is critical for manufacturing and service companies. One of the most difficult challenge in effectively managing spare parts is to manage and control stock levels, to achieve best service level, especially in aircraft industry which is faced with high uncertainty in the spare parts’ demand. Moreover, specificities in the business aircraft industry e.g. unavailability of travel plan, aircraft usages and that customers are not obliged to order spare parts to Original Equipment Manufacturer (OEM), adds unpredictability in spare parts demand. Consequently, more uncertainty and unpredictability in spare parts’ demand as well as absence of accurately value of ordering, holding, overstocking and backordering costs result traditional inventory control policies ineffective. In this way, it is important to develop the specific inventory management/control methods for business aircrafts industry. In this paper, we propose a new methodology based on distribution fit for slow and fast moving spare parts with target cycle service and fill rates as the basis for cost effective inventory management. Hence, inventory optimization based on mathematical model to minimize the total investment subject to fill rate as an inventory service measure at both part and location level is proposed. An extended greedy heuristic is proposed for cost and time effective inventory control. The proposed methodology based on distribution fit parametric estimation, mathematical model and meta-heuristic are validated using data from worlds’ reputed business jet manufacturer.