Pooling of spare parts between multiple users: How to share the benefits?

Frank Karsten and Rob J.I. Basten

European Journal of Operational Research, 2014, vol. 233, issue 1, 94-104

Abstract: Companies that maintain capital goods (e.g., airplanes or power plants) often face high costs, both for holding spare parts and due to downtime of their technical systems. These costs can be reduced by pooling common spare parts between multiple companies in the same region, but managers may be unsure about how to share the resulting costs or benefits in a fair way that avoids free riders. To tackle this problem, we study several players, each facing a Poisson demand process for an expensive, low-usage item. They share a stock point that is controlled by a continuous-review base stock policy with full backordering under an optimal base stock level. Costs consist of penalty costs for backorders and holding costs for on-hand stock. We propose to allocate the total costs proportional to players’ demand rates. Our key result is that this cost allocation rule satisfies many appealing properties: it makes all separate participants and subgroups of participants better off, it stimulates growth of the pool, it can be easily implemented in practice, and it induces players to reveal their private information truthfully. To obtain these game theoretical results, we exploit novel structural properties of the cost function in our (S−1, S) inventory model.

Keywords: Inventory; Cooperative game theory; Core; Inventory pooling; Spare parts (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:233:y:2014:i:1:p:94-104

DOI: 10.1016/j.ejor.2013.08.029

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