Spare Parts Cost Management for Long-Term Economic Sustainability: Using Fuzzy Activity Based LCC

Orlando Durán,Paulo Durán,Paulo Afonso

doi:10.3390/su11071835

Abstract

The concept of life cycle sustainability assessment provides an interdisciplinary space to discuss the main challenges in addressing sustainability from a long-term perspective. However, uncertainty related to cost parameters constitutes one of the main challenges in LCC. This uncertainty prevents managers from precisely anticipating the exact values of important variables. These variables include the costs of spare parts inventories, which in some cases can constitute high percentages of the total cost of a product or service. We propose an activity-based costing model that handles uncertainty using triangular numbers, along with a matrix representation, and Weibull functions to incorporate the projected equipment reliability into the model. A case study based on a spare parts distribution center, which serves the mining industry in Northern Chile, is presented. The results obtained are compared with a traditional costing method. The advantage of using the proposed approach over the traditional one is evident. Future research is directed towards the implementation of a larger number of inventory policies, along with experimentation with other types of fuzzy numbers.

Highlights

The concept of life cycle sustainability assessment [1] was created in order to provide an interdisciplinary space in which specialists, from different disciplinary fields, could discuss the main challenges in addressing sustainability with a life cycle perspective
Wood and Hertwich [2], discussed the role of Life Cycle Costs (LCC), assuming that sustainability is a concept defined at the macro organizational level, and economic sustainability is one of the key elements of such a level
According to [5], Total Costs of Ownership (TCO) and LCC are models that allow a more accurate and complete assessment of all costs that are related to investment decisions or purchasing activities

Summary

Introduction

The concept of life cycle sustainability assessment [1] was created in order to provide an interdisciplinary space in which specialists, from different disciplinary fields, could discuss the main challenges in addressing sustainability with a life cycle perspective. This paper proposes an activity-based life cycle costing (AB-LCC) model, which uses fuzzy mathematics to identify costs of spare parts management during the life cycle of a physical asset or system. The main objective of the model is to allow decision-makers to perform assessments and select the most appropriate inventory parameters for a given set of spare parts, anticipating budgets, and/or determining logistics parameters This approach represents a useful method to model and operate in scenarios when only diffuse information is available to make long-term assessments. Afonso and Paisana [35] proposed a matrix-based ABC algorithm In this algorithm, data related to resources, activities, cost objects and drivers are expressed using vectors and matrices. The Weibull-based model allows the estimation of the failure rates and corresponding spare parts’ demand

Proposed Model

Case Study

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Results and Discussion