Supply chain, service parts inventory management, service parts inventory modeling, maintenance modeling, multi-objective optimization


In many equipment-intensive organizations in the manufacturing, service and particularly the defense sectors, service parts inventories constitute a significant source of tactical and operational costs and consume a significant portion of capital investment. For instance, the Defense Logistics Agency manages about 4 million consumable service parts and provides about 93% of all consumable service parts used by the military services. These items required about US$1.9 billion over the fiscal years 1999-2002. During the same time, the US General Accountability Office discovered that, in the United States Navy, there were about 3.7 billion ship and submarine parts that were not needed. The Federal Aviation Administration says that 26 million aircraft parts are changed each year. In 2002, the holding cost of service parts for the aviation industry was estimated to be US$50 billion. The US Army Institute of Land Warfare reports that, at the beginning of the 2003 fiscal year, prior to Operation Iraqi Freedom the aviation service parts alone was in excess of US$1 billion. This situation makes the management of these items a very critical tactical and strategic issue that is worthy of further study. The key challenge is to maintain high equipment availability with low service cost (e.g., holding, warehousing, transportation, technicians, overhead, etc.). For instance, despite reporting US$10.5 billion in appropriations spent on purchasing service parts in 2000, the United States Air Force (USAF) continues to report shortages of service parts. The USAF estimates that, if the investment on service parts decreases to about US$5.3 billion, weapons systems availability would range from 73 to 100 percent. Thus, better management of service parts inventories should create opportunities for cost savings caused by the efficient management of these inventories. Unfortunately, service parts belong to a class of inventory that continually makes them difficult to manage. Moreover, it can be said that the general function of service parts inventories is to support maintenance actions; therefore, service parts inventory policies are highly related to the resident maintenance policies. However, the interrelationship between service parts inventory management and maintenance policies is often overlooked, both in practice and in the academic literature, when it comes to optimizing maintenance and service parts inventory policies. Hence, there exists a great divide between maintenance and service parts inventory theory and practice. This research investigation specifically considers the aspect of joint maintenance and service part inventory optimization. We decompose the joint maintenance and service part inventory optimization problem into the supplier s problem and the customer s problem. Long-run expected cost functions for each problem that include the most common maintenance cost parameters and service parts inventory cost parameters are presented. Computational experiments are conducted for a single-supplier two-echelon service parts supply chain configuration varying the number of customers in the network. Lateral transshipments (LTs) of service parts between customers are not allowed. For this configuration, we optimize the cost functions using a traditional, or decoupled, approach, where each supply chain entity optimizes its cost individually, and a joint approach, where the cost objectives of both the supplier and customers are optimized simultaneously. We show that the multiple objective optimization approach outperforms the traditional decoupled optimization approach by generating lower system-wide supply chain network costs. The model formulations are extended by relaxing the assumption of no LTs between customers in the supply chain network. Similar to those for the no LTs configuration, the results for the LTs configuration show that the multiobjective optimization outperforms the decoupled optimization in terms of system-wide cost. Hence, it is economically beneficial to jointly consider all parties within the supply network. Further, we compare the model configurations LTs versus no LTs, and we show that using LTs improves the overall savings of the system. It is observed that the improvement is mostly derived from reduced shortage costs since the equipment downtime is reduced due to the proximity of the supply. The models and results of this research have significant practical implications as they can be used to assist decision-makers to determine when and where to pre-position parts inventories to maximize equipment availability. Furthermore, these models can assist in the preparation of the terms of long-term service agreements and maintenance contracts between original equipment manufacturers and their customers (i.e., equipment owners and/or operators), including determining the equitable allocation of all system-wide cost savings under the agreement.


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Graduation Date



Geiger, Christopher


Doctor of Philosophy (Ph.D.)


College of Engineering and Computer Science


Industrial Engineering and Management Systems

Degree Program

Industrial Engineering








Release Date

December 2008

Length of Campus-only Access


Access Status

Doctoral Dissertation (Open Access)