Determining Optimal Order Amount for End-of-Life Parts Acquisition with Possibility of Contract Extension

Abstract

Manufacturers often encounter difficulties in supplying an adequate number of spare parts for a product in its postproduction phase. As a result, manufacturers will sometimes make one final order of a model of spare part that is used to satisfy any demand for the spare part going forward. The problem is compounded when a customer may request an extension to the maintenance or supply contract for which the part is supplied. We present two possible approaches for dealing with the problem: one involves the use of a continuous-time dynamic program that allows for the possibility of salvage, and the other makes use of a two-stage stochastic algorithm that does not consider salvage.

Acknowledgments

The authors would like to thank the two referees for their comments and suggestions on an earlier version of the article.

Additional information

Notes on contributors

Nicholas W. Leifker

Nicholas W. Leifker is an assistant professor in the Department of Management/Marketing at St. John Fisher College, where he performs research and teaches in the areas of operations and supply chain management. Dr. Leifker attended Texas A&M University where he received his bachelor of science degree in chemical engineering and continued his education there to earn his master's in business administration. He then went on to the University of Iowa, where he pursued his Ph.D. in business administration. Prior to joining Fisher, he worked as an analyst for Suez Energy Resources N.A., a retail energy provider for businesses. He also worked as a mechanical engineer for Stewart Systems, a manufacturer of industrial-scale bakery equipment. Originally from Dubuque, Iowa, Dr. Leifker spent most of his life in the Dallas, Texas, area. Currently, he resides in Brighton, New York.

Philip C. Jones

Philip C. Jones is the Sylvia and Clement T. Hanson Professor of Manufacturing Productivity at the University of Iowa. He joined the faculty at the Henry B. Tippie College of Business in 1994. Since that time he has served as Associate Dean and as DEO (Chairman) of the Department of Management Sciences. His research focuses on finding ways to help reduce waste. He was a finalist for the 2002 Edelman prize, awarded annually by the Institute for Operations Research and Management Sciences (INFORMS) for achievement in the practice of operations research and the management sciences, for his joint work with Timothy Lowe and Greg Kegler on matching supply and demand in the seed corn industry. His teaching centers around process improvement methods, and he has developed several new courses and case studies used in the MBA program at The University of Iowa and elsewhere. Prior to joining the faculty at The University of Iowa, he held a joint appointment as Professor of Industrial Engineering at the McCormick School of Engineering, Professor of Managerial Economics and Decision Sciences at the Kellogg Graduate School of Management, and Professor of Transportation at the Transportation Center, all at Northwestern University. He was cofounder of Northwestern's Master of Management in Manufacturing (MMM) degree program, a joint program of the McCormick School of Engineering and the Kellogg Graduate School of Management. Earlier in his career, Professor Jones worked as a senior engineer at EG&G Idaho, Inc. He also spent time in the U.S. Army in the field of military intelligence and spent 15 years in the U.S. Army Reserves. He holds a bachelor's degree in industrial engineering from the Georgia Institute of Technology, a master of science degree in operations research from Stanford University, a master of arts degree in economics from the University of California at Berkeley, and a Ph.D. degree in operations research and industrial engineering from the University of California at Berkeley.

Timothy J. Lowe

Timothy J. Lowe is the Chester Phillips Professor of Operations Management at the Tippie College of Business, University of Iowa. He has teaching and research interests in the areas of supply chain management and management sciyence. He received his B.S. and M.S. degrees in engineering from Iowa State University and his Ph.D. in operations research from Northwestern University. He has served as an associate editor for the journals Operations Research, Location Science, TOP, and Managerial and Decision Economics; as a senior editor for Manufacturing and Service Operations Management; and as Departmental Editor for Transactions of the Institute of Industrial Engineers. He has held several grants from the National Science Foundation to support his research on location theory. Professor Lowe has served on the faculties of the University of Florida, Purdue University, and Pennsylvania State University. In addition, he has served as a consultant in the areas of production and distribution for several companies.