Repairable spare parts provisioning for multiregional expanding fleets of equipment under performance-based contracting

Abstract

Performance-based service is becoming a dominant business strategy, especially in the capital-intensive equipment industry. When new equipment is released into multiregional markets, managing repairable spare parts provisioning so as to maximize the service profit from an increasing number of installations becomes challenging since the demand for spare parts varies over time across multiregional markets. A two-echelon repairable spare parts service network is studied to support performance-based service under multiregional fleet expansions. This study proposes an adaptive multi-phase basestock policy that dynamically adjusts the basestock levels in the two-echelon warehouses and the repair capacity in the central depot to meet the nonstationary demands. A profit-centric model is formulated that considers linear-step revenue and availability bands. Using the structural properties of the optimization model, a greedy algorithm is developed based on marginal analysis to solve the problem. Numerical experiements are conducted using a case study of a real business problem and its variants to demonstrate the effectiveness and applicability of the proposed model and the greedy algorithm.