Determining Optimal Order Amount for End-of-Life Parts Acquisition with Possibility of Contract Extension

Nicholas W. Leifker, Philip C. Jones and Timothy J. Lowe

The Engineering Economist, 2014, vol. 59, issue 4, 259-281

Abstract: Manufacturers often encounter difficulties in supplying an adequate number of spare parts for a product in its postproduction phase. As a result, manufacturers will sometimes make one final order of a model of spare part that is used to satisfy any demand for the spare part going forward. The problem is compounded when a customer may request an extension to the maintenance or supply contract for which the part is supplied. We present two possible approaches for dealing with the problem: one involves the use of a continuous-time dynamic program that allows for the possibility of salvage, and the other makes use of a two-stage stochastic algorithm that does not consider salvage.

Date: 2014
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DOI: 10.1080/0013791X.2014.903449

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