Service Parts Management: Demand Forecasting and Inventory Control

327 Pages·2011·2.62 MB·English

by  Aris A. Syntetos

Service Parts Management
Nezih Altay (cid:2) Lewis A. Litteral
Editors
Service Parts Management
Demand Forecasting and Inventory Control
123
Editors
Assoc. Prof.NezihAltay Assoc. Prof.LewisA.Litteral
Department of Management Robins Schoolof Business
DePaul University Universityof Richmond
1 E.Jackson Blvd. Westhampton Way28
Depaul Center 7000 Richmond, VA23173
Chicago, IL 60604 USA
USA e-mail: [email protected]
e-mail: [email protected]
ISBN 978-0-85729-038-0 e-ISBN 978-0-85729-039-7
DOI 10.1007/978-0-85729-039-7
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Dedications
To my wife and best friend, Ozge, for
standing by me without reservation, and my
daughter, Ela who I love like the oceans.
N.A.
To the one and only, Anna, my wife and best
friend in life; Daniel, Catie, and Drew, the
three who make it worthwhile; and Cash,
Penny, and Archie who bring joy to all of us.
L.A.L.

Preface
Thereare14distinctcontributionstothisvolumefromauthorswhohailfrommore
than ten countries representing universities from six countries around the world.
Althoughtheirapproachestothemanagementofsparepartsarewidelydivergent,
everyone involved in the project agrees on two things: first, the management of
sparepartsisimportantbecauseofitsprevailingnatureandmagnitudeandsecond,
the problems associated with the management of spare parts are complex and
reallyveryhard.Thefirstpointisthemotivationforthevolumeandwethinkthat
the secondpoint is moderated somewhat bythe talent, experience, and hard work
of the authors whose work is presented.
Many industries rely on the management of spare parts including military
weapon systems in naval and aircraft applications, commercial aviation, infor-
mationtechnology,telecom,automotive,andwhitegoodssuchasfabricsandlarge
household appliances. Some of these applications involve providing service parts
to end users while others involve the maintenance of manufacturing facilities for
products like textiles and automobiles.
AccordingtoanarticleintheMcKinseyQuarterlyauthoredbyThomasKnecht,
RalfLeszinski,andFelixA.Weber, theafter-sales business accounts for10–20%
of revenues and a much larger portion of total contribution margin in most
industrialcompanies.Equallyimportant,duringagivenproduct’slifecycle, after-
sales can generate atleast three times the turnover of the original purchase,
especially for industrial equipment. A well-run after-sales business can also pro-
vide strategic benefits. Customers are usually less concerned about spare part
pricesthanaboutspeedofdeliveryandavailabilityofserviceknowhow,whether
on-site or via telephone. The reason is simple: down-time costs typically run at
anywhere from 100 to 10,000 times the price of spare parts or service. And that
means good performance can boost customer satisfaction, and thus, build repur-
chase loyalty in the original equipment business.
With specific regard to spare parts management policies used by the armed
servicesoftheUnitedStates,theGeneralAccountingOfficereportedin1997that
theinventoryofservicepartsatnon-majorlocationswasvaluedatover$8.3 billion
and that the need for many of the items stored at non-major locations is
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viii Preface
questionable. Of the $8.3 billion of inventory at the non-major locations,
$2.7 billion of it was not needed to meet the services’ current operating and war
reserve requirements. Maintaining inventory that is not needed is expensive and
doesnotcontributetoaneffective,efficient,andresponsivesupplysystem.Based
onGAO’sanalysis,GAOestimatestheservicesthatcouldsaveabout$382 million
annuallyininventoryholdingcostsbyeliminatinginventoryatnon-majorlocations
that is notneededto meet current operating and warreserve requirements.
Academics and practitioners will find this volume valuable, as a starting point
for spare parts research or to augment their current knowledge, for the results
presented here as well as the foundation upon which those results are built as
indicated in the extensive literature reviews and reference sections of each paper.
There are a number of papers in this volume that provide some level of
summary and thus are particularly suited to readers looking for an initial under-
standingofthefieldofmanagingspareparts.OneoftheseistheworkbyAndrew
Huberwhereheprovidesaframeworkforevaluatingtheapplicationofalternative
techniquesnotingthatthisisaplacewherepracticeoftenlagstheory.Macchietal.
discuss a structured framework of five steps whereby decisions can be made
regardingthemaintenanceofsparepartsintheavionicsector.TheworkofBucher
and Meissner provides a summary of ways that intermittent demand can be cat-
egorized,allowingtheresearcherorpractitionertoquicklydeterminewhichspare
parts management methods to consider given the nature of their particular data.
Bartezzaghi and Kalchschmidt present findings on the choice of how the data
aggregated can affect the performance of managing inventory. A distinctive
contributiontovolumeismadebySmithandBabai:theypresentacomprehensive
review of bootstrapping methods for spare parts forecasting, a promising area of
study that has been developed as a parallel track to parametric methods.
Other papers in this volume present and evaluate various techniques (tabu
search, Bayesian analysis, decision trees, and prediction intervals) tested on real
andsimulateddata.Sometechniquesaretheoreticaldevelopmentswhileothersare
heuristics.Evenwiththecomputingpoweravailablein2010,someaspectsofthe
sparepartsinventorymanagementproblemremainsocomplexthatitisimpossible
to apply traditional techniques to forecasting and inventory management in this
context. Various criteria are used to evaluate techniques, and some of which are
traditional.
Acknowledgments
Thisvolumerepresentstheworkofmanyindividuals.OurgreatestdebtistoTricia
Fanney of the Robins School of Business at the University of Richmond who has
cheerfully and carefully shaped the manuscript into its current form. We are also
gratefultoeach ofthe authors, manyofwhom also served asreviewers. Jonathan
Whitaker and Steve Thompson of the Robins School served as reviewers and we
appreciate their service. Our thanks go to the editorial team at Springer for
encouraging and supporting the research in this area. Special thanks are due to
Claire Protherough who worked closely with Tricia in bringing this project to
publication.
Respectfully submitted:
Nezih Altay and Lewis A. Litteral
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