End-of-Life Inventory Decisions of Service Parts

With the spurt of technology and innovation the life cycles of products have become shorter and products enter their final phases more quickly than before. Consequently, service parts also enter their end-of-life phases earlier. Final phase of a typical service part starts as soon as the part production is ceased and ends when the last service or warranty contract expires. However, a firm obligation to satisfy demands for spare parts during service periods, which normally goes beyond the termination time of part production, drives inventory managers to plan for service parts acquisition before the start of the end-of-life phase. One popular tactic in practice is placing a final order.  The prime challenge of a firm while deciding a final order quantity is to minimize inventory-carrying costs together with the risk of obsolescence at the end of the planning period.

In this study, end-of-life inventory decisions for an array of products including both consumer electronics and capital-intensive products are investigated. For consumer electronics we show that considering an alternative service policy, such as swapping the defective product with a new one, besides a regular repair policy improves cost efficiency.

Moreover, for capital-intensive products we study systems with phase-out returns and systems with customer differentiation in the end-of-life phase. Our analysis reveals that taming the uncertainty associated with phase-out arrivals engenders a remarkable efficiency improvement. Moreover, including rationing decisions in the end-of-life phase enhances the performance of the system by a significant reduction in cost and risk of obsolescence.