Cost of Ownership of Spare Parts under Uncertainty: Integrating Reliability and Costs

Orlando Durán (), Paulo Afonso, Víctor Jiménez and Katty Carvajal
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Orlando Durán: Escuela de Ingeniería Mecánica, Pontificia Universidad Católica de Valparaiso, Valparaiso 2340025, Chile
Paulo Afonso: Centro Algoritmi, Departamento de Produção e Sistemas, Universidade do Minho, 4710-057 Braga, Portugal
Víctor Jiménez: Departamento de Contabilidad y Finanzas, Universidad del Valle, Cali 760043, Colombia
Katty Carvajal: Escuela de Ingeniería Mecánica, Pontificia Universidad Católica de Valparaiso, Valparaiso 2340025, Chile

Mathematics, 2023, vol. 11, issue 15, 1-23

Abstract: In capital-intensive organizations, decisions regarding capital costs play an important role due to the significant amount of investment required and the expected return on investment. Spare parts management is crucial to those ends, as spare parts management can constitute a significant portion of OPEX. Companies must implement a trade-off analysis between stock levels and assets’ availability. Decision-making supports mechanisms such as the Level of Repair Analysis (LORA), Integrated Logistics Systems (ILS), and life-cycle costing (LCC) models have been developed to aid in equipment selection, implementation, and decommissioning. Nowadays, these mechanisms appear to be integrated with risk-management models and standards. This paper proposes a long-term costing model that integrates a capacity analysis, reliability functions, and risk considerations for the cost management of logistics activities, particularly in MRO structures. The model is built upon Time-Driven Activity-Based Costing (TD-ABC) and incorporates the volume of activities generated by MRO needs. It also addresses uncertainty through the integration of a cost-at-risk model. By integrating spare parts, activity-based cost models, and risk measurement through Monte Carlo simulation, this study offers powerful insights into optimizing spare parts logistics activities. The proposed model is a novel approach to include the risk of cost in spare parts management, and its matrix-activity-based structure makes possible the development of sophisticated mathematical models for costing and optimization purposes in different domains.

Keywords: costing systems; TD-ABC; spare parts; reliability; uncertainty; risk (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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