Managing performance based logistics by balancing reliability and spare parts stocking

This paper investigates a quantitative approach for performance based logistics management in the presence of uncertainty. Our study concentrates on the situation where the customer purchased the capital equipment from the original equipment manufacturer who also provides the after-sales service. The service provider will be rewarded monetarily if equipment availability is kept above a pre-specified level. We derived an analytical model to characterize the equipment availability incorporating five performance drivers. This analytical insight into the equipment availability allows us to assess the trade-off between product reliability and the spare parts level. The equipment availability metric is examined under various scenarios by varying the usage rate, repair turn-around time, and the availability target.