Optimizing Part Sourcing Strategies for Low-Volume, Long Life Cycle Products Using Second Sourcing and Part Hoarding

Abstract

Long life cycle products, commonly found in aviation, medical and critical infrastructure applications, are often fielded and supported for long periods of time (20 years or more). The manufacture and support of long life cycle products rely on the availability of suitable parts, which over long periods of time, leaves the parts susceptible to supply chain disruptions such as suppliers exiting the market, allocation issues, counterfeit part risks, and part obsolescence. Proactive mitigation strategies exist that can reduce the impact of supply chain disruptions. One solution to mitigating the supply chain risk is the strategic formulation of part sourcing strategies (optimally selecting one or more suppliers from which to purchase parts over the life of the part’s use within a product or organization). Strategic sourcing offers a way of avoiding the risk of part unavailability (and its associated penalties), but at the expense of qualification and support costs for multiple suppliers. An alternative disruption mitigation strategy is hoarding. Hoarding involves stocking enough parts in inventory to satisfy the forecasted part demand (for both manufacturing and maintenance requirements) of a fixed future time period. This excess inventory provides a buffer that reduces the effect of supply chain disruptions on the part total cost of ownership (TCO), but increases the total holding cost. This paper presents a method of performing tradeoff analyses and identifying the optimal combination of second sourcing and hoarding for a specific part and product scenario. A case study was performed to examine the effects of hoarding on both single and second sourced parts. The case study results show that hoarding can contribute to a decrease in the cumulative TCO and a decrease in its variance.