Optimal selection of obsolescence mitigation strategies using a restless bandit model

U. Dinesh Kumar and Haritha Saranga

European Journal of Operational Research, 2010, vol. 200, issue 1, pages 170-180

Abstract: Obsolescence of embedded parts is a serious concern for managers of complex systems where the design life of the system typically exceeds 20Â years. Capital asset management teams have been exploring several strategies to mitigate risks associated with Diminishing Manufacturing Sources (DMS) and repeated life extensions of complex systems. Asset management cost and the performance of a system depend heavily on the obsolescence mitigation strategy chosen by the decision maker. We have developed mathematical models that can be used to calculate the impact of various obsolescence mitigation strategies on the Total Cost of Ownership (TCO) of a system. We have used classical multi-arm bandit (MAB) and restless bandit models to identify the best strategy for managing obsolescence in such instances wherein organizations have to deal with continuous technological evolution under uncertainty. The results of dynamic programming and greedy heuristic are compared with Gittins index solution.

Keywords: Gittins; index; Markov; decision; process; Multi-arm; bandit; (MAB); model; Obsolescence; Restless; bandits; (RB); Total; cost; of; ownership (search for similar items in EconPapers)
Date: 2010

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Persistent link: http://EconPapers.repec.org/RePEc:eee:ejores:v:200:y:2010:i:1:p:170-180

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