strategic management of spare parts in closed-loop supply - dij

Strategic Management of Spare Parts in Closed-Loop Supply Chains

A System Dynamics Approach

Thomas Stefan Spengler

Braunschweig University of Technology, Germany Department of Production Management

Thomas S. SpenglerDepartment of Production Management, Braunschweig University of Technology 2

Presentation Outline

1. Introduction

2. Management of spare parts in the final-service phase

3. Closed-loop supply chains for parts recovery

4. System Dynamics Model

5. Strategies and results

6. Concluding remarks


Guaranteed spare parts supply (Germany)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

white goods (

normal)

white goods (

max.)

consu

mer ele

ctronics

(norm

al)

consu

mer ele

ctronics

(max

.)

ICT (n

ormal)

ICT (m

ax.)

medica

l equipmen

t (norm

al)

medica

l equipmen

t (max

)

Automotives

OEM (n

ormal)

Automotives

OEM (m

ax.)

componen

t supplie

rs (norm

al)

componen

t supplie

rs (m

ax)

more than 30 yearsup to 30 yearsup to 25 yearsup to 20 yearsup to 15 yearsup to 10 yearsup to 5 years

Ihde et al. 1999


10 years Time

Development

Production

MaintenanceElectronics - PLC

Software-PLC

Automobiles - PLC

3 years 7 years 15 years

Product life cycles in the electronic and automotive industry


Management of spare parts in the final-service phase

• Producers have to assure spare parts supply for the average lifetime of the product

• Losing economies of scale – production volume diminishes rapidly after the production phase

is stopped

• Limited flexibility of production equipment• Discontinued supply of electronic components that are

provided from outside suppliers


Strategies to ensure the ability to supply spare parts during the final service phase

Producing Final Stocks

Producing small lots of parts

Develop and use compatible parts

Reuse of parts

Repairing parts that are out-of-order

Redesign of spare part


Study on final orders (automobile supplier) normalized Inventory, 71 final orders, final service phase 15 years

0

20

40

60

80

100

120

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72

... Monate nach EBV-Maßnahme

%

6 years

[%]

Example: part discontinued 04/97, out of stock 12/2000, time to redesign 6 Month


• Characteristics of Final Order Policy

– Build up final stocks that lock up a lot of capital• Agfa-Gevaert: 16.5 – 22 Mio. € (30 – 40% of total spare

parts inventory)

– Underestimation of demand • Producers have to compensate customers for delivery

delay• Producers often have to redesign the spare part

– Firms often fail to monitor final stocks adequately

Management of spare parts in the final-service phase


Integrating parts recovery in spare parts management

• More operational flexibility

• Chance to reduce final stocks and

• Chance to reduce stock-outs

• Closed-loop supply chains are difficult to control

• Uncertainties in

– Returns volume– Timing of returns– Yield of recovery– ...


AGFA: ADC Compact

medical diagnosis device which scans and digitizes data from x-ray films

End of Production: 2001

End of Service: 2008

Case Study: Spare parts management in closed-loop supply chains


Product Life Cycle of the ADC Compact

80

60

40

20

00 5 10 15 20 25 30 35 40 45 50

Time (Month)

Equipment / Month

Production phase (1998 – 2001)Total sales: 1920 pieces of equipment


Scan-Unit

Working Example: Scan-Unit of the ADC Compact


3-4 years 4-5 years 7-10 yearsEOD

Feasibility study Prototype

SOP EOP EDO

Availability of spare parts during the service period

Development

Predefinition of electronics specificationsand preselection of electronic components

Field tests

Definition spare part

First disposition of spare parts

Longterm disposition (forecast)final stock

Availability of spare parts

t

SOP/EOP – Start/ End-of-ProductionEOD – End of DeliveryEDO – End of Delivery ObligationEOS – End of Service

EOS

Product launch Degeneration

Sales from Stock

Make to stock

Strategic Management of spare parts at Agfa


Distribution Production Supply

Collection Selection Reprocessing

Equipmentin Use

User

Equipmentstored

AlternativeDisposal

Disposal

Spare Parts flows in the original chain Equipment flows in the recovery chain Parts flows in the recovery chain

Closed Loop Supply Chain for Parts Recovery


• System Dynamics– very effective tool in representing the dynamics of

management systems – enables the user to develop a better understanding

• of the effects of changes, and • supports him in designing alternative policies that result in an

improved system performance

– SD was developed by Jay Forrester at the MIT in the 1960´s

– applied in many areas such as product development, project management, and supply chain management, among which is a popular explanation of the bullwhip effect

System Dynamics Model

Stock ofServiceable Spare

Parts

Work inProcessInventory

ProductionRate

ProductionStart Rate

ShipmentRate

Spare PartsOrder Rate

Backlog

OrderFullfillment

DemandForecasting

ProductionScheduling

Stock ofRecoverable Spare

Parts

Desired SpareParts

RecoveryRate

RecoveryScheduling

EquipmentTake-Back

Rate

Materials RecyclingRate Parts

Final OrderRate Production

Capacity

Stock of ObsoleteEquipmentTotal

ObsolescenceRate

AlternativeDisposal Rate

Aging Sector

Aging Sector . Stock of returnedEquipment Disassembly

Rate

Materials RecyclingRate Equipment

Reverse Logistics and RecoverySector

Spare Parts Supply Sector

Closed-loop supply chain


Parts


ProductionRate


ShipmentRate


Backlog

OrderFullfillment

DemandForecasting



Parts

Desired SpareParts

RecoveryRate

RecoveryScheduling

EquipmentTake-Back

Rate



Capacity


ObsolescenceRate


Aging Sector


Rate






Parts


ProductionRate


ShipmentRate


Backlog

OrderFullfillment

DemandForecasting



Parts

Desired SpareParts

RecoveryRate

RecoveryScheduling

EquipmentTake-Back

Rate



Capacity


ObsolescenceRate


Aging Sector


Rate





Product AcquisitionPolicy


Characteristics of strategies

Base CaseBase case with forecast Recovery waste streamRecovery with aquisitionSystemwide inventory policy waste streamSystemwide inventory with aquisitionEarly warning system waste streamEarly warning system with aquisition (EWA)Stocking recoverable parts SRP + EWA

Long term schedule

Stocking recoverable

parts

recovery of parts

considered

Product acquisition

mid-term forecast


ORERTERP

PR

Production Rate (PR)Part/Month

Order Rate (OR)Part/Month

Equipment Returns Recoverable Parts (ERP)Equipment/Month

Equipment Returns total (ERT)Eqquipment/Month

20010

150 7.5

100 5

50 2.5

0 00 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240

Time (Month)

Thomas SpenglerDepartment of Production Management, Braunschweig University of Technology

Base case: Optimal final stock; no recovery, no redesign


Base Case: Optimal final stock – 20%, no recovery, redesign

Production Rate (PR)Part/Month



Equipment Returns total (ERT)Equipment/Month

ORERTERP

200 10

150 7.5

100 5

50 2.5

00

0 12 24 36 48 60 72 84 96 168 180 192 204 216 228 240

PR

108 120 132 144 156Time (Month)


400

300

200

100

00 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240

Time (Month)

Base Case: Optimal final order – 20%, no recovery, redesign

Serviceables Part/

Backlog Part


-2500 -2000 -1500 -1000 -500 0 500

Base Case

Base case with forecast

Recovery waste stream

Recovery with aquisition

Systemwide inventory policy waste stream

Systemwide inventory with aquisition

Early warning system waste stream

Early warning system with aquisition (EWA)

Stocking recoverable parts (SRP)

SRP + EWA

in thousand €

low recoverabilitymedium recoverabilityhigh recoverability

Comparison of results (net present value)




Long term schedule


parts

recovery of parts

considered

Product acquisition

mid-term forecast


Recovery acquisition: 60% final stock, 65% return quota,high recoverability




Material Recycling Rate (MR)Equipment/Month

Recovery Rate (RR)Part/Month

25

18.75

12.5

6.25

00 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240

Time (Month)


-2500 -2000 -1500 -1000 -500 0 500

Base Case









SRP + EWA

in thousand €






Long term schedule


parts

recovery of parts

considered

Product acquisition

mid-term forecast





Material Recycling Rate (MR)Equipment/Month

Recovery Rate (RR)Part/Month

12

9.6

7.2

4.8

2.4

00 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240

Time (Month)

Stocking recoverable parts + early warning system: 75% final stock, 50% return quota, low recoverability


-2500 -2000 -1500 -1000 -500 0 500

Base Case









SRP + EWA

in thousand €




Concluding Remarks

• Recovery of parts can be beneficial to provide customers with spare parts

• system dynamics to test various policies to control the closed-loop supply chain

• different forms of product take back (active product acquisition and waste stream)

• different policies

– when to stop sending recoverable parts to materials recycling

– when to acquire units of equipment with recoverable parts

– when to begin to redesign a spare part.

• necessary to strengthen the monitoring of final stocks as well as the stocks of recoverable parts within closed-loop supply chains.

• Improving information exchange between producers of EEE and recycling companies


Attachments and Data


Parameter

• Service time: 7 years• Redesign time: 6 months• Redesign costs: 1,5 Mio. €• Production costs after redesign: 200% of production costs during normal phase• Out of pocket costs for new and recovered parts: 50 € per month and part• Scrapping or material recycling costs: 22,5 € per part• Reverse logistics costs (transportation and deconstruction): 42,4 € per part• Product acquisition costs: depend on the proportion of discarded equipment with

recoverable parts => max. 200% of reverse logistics costs• Out of pocket costs for disassembled scan-unit: 1 € per month and part• Disassembly costs: 45 € per scan-unit• Rate of interest: 8% per year


Scenario Parameter

• Return Quotas: 50% - 90%

• Final Stock: 60% - 100%

• Recoverability: high, medium, low

9 x 9 x 3 = 243 simulation runs per strategy5 % steps


Recoverability scenarios

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

1 2 3 4 5 6 7 8 9 10 11 12 13

Age of Equipment

Rec

over

abili

ty in

%

high recoverabilitymedium recoverabilitylow recoverability


0

0,02

0,04

0,06

0,08

0,1

0,12

0,14

0,16

1 2 3 4 5 6 7 8 9 10 11 12 13

Age of Equipment

Perc

ent

Probability mass function of equipment return time


0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

0,45

0,5

1 2 3 4 5 6 7 8 9 10 11 12 13

Age of Equipment

Perc

ent

Probability mass function of repair

strategic management of spare parts in closed-loop supply - dij

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