Optimal procurement of spare parts in the final phase of the life cycle in the automotive industry

Transcription

1 Eindhoven, Sepember 2009 Opimal procuremen of spare pars in he final phase of he life cycle in he auomoive indusry by Tom Zanders BSc Indusrial Engineering and Managemen Science TU/e 2007 Suden ideniy number In parial fulfillmen of he requiremens for he degree of Maser of Science In Operaions Managemen and Logisics Universiy Supervisors: Dr. Ir. H.P.G. van Ooijen (primary supervisor) Dr. G.P. Kiesmüller (secondary supervisor) Company Supervisor: H. Manders i

2 TUE. Deparmen Technology Managemen. Series Maser Theses Operaions Managemen and Logisics ARW 2009 OML Subjec headings: Spare pars, Invenory conrol, Final order, Life cycle coss ii

3 I. Absrac This maser hesis describes he problem of spare par procuremen in he final phase of he spare par life cycle. By means of a cos model, he opimal spare par procuremen is deermined. This model is applied o deermine he opimal spare par procuremen sraegy for MME. iii

4 II. Managemen summary This repor is he resul of a Maser hesis projec a Misubishi Moors Europe B.V. (MME). In 2002, MME, a subsidiary of Misubishi Moors Company (MMC), was founded o coordinae he sales and disribuion of vehicles in Europe. Furhermore, hey are responsible for he sales and disribuion of spare pars and accessories in Europe. MME has difficulies wih he spare par procuremen afer he producion of an accompanying vehicle ends. When Nedcar B.V. erminaes vehicle manufacuring, he demand for spare pars will decrease rapidly, because usually less spare pars are necessary for service han for he producion of vehicles. As a resul, he supplier will probably increase prices when producion of spare pars is coninued afer he erminaion of vehicle producion. Furhermore, i is possible ha he supplier erminaes he producion of spare pars. The problem of MME is ha hey do no know how much should be ordered per procuremen opion per ime uni. Furhermore, hey do no know how much spare pars are available for remanufacuring. Therefore, he main goal of he projec is o develop a spare par procuremen model for MME, which minimizes oal relevan coss and achieves a predefined service rae. An example of such a procuremen model is proposed by Inderfurh and Mukherjee (2008). However, muliple assumpions made by Inderfurh and Mukherjee are no valid for MME. Therefore, he main research assignmen is he following: Develop a spare par procuremen model for spare pars in he final phase in he auomoive indusry ha minimizes oal relevan coss and achieves a predefined service rae. In order o deermine which spare pars are included in he case sudy a spare par analysis is conduced. The following (quaniaive) variables are used o classify he mos imporan spare pars: Iem price, Invenory holding coss, Volume, Demand, Criicaliy, Subsiuabiliy and Obsolescence. Besides his quaniaive analysis also a qualiaive analysis is conduced. I can be concluded ha he mos ineresing spare pars are pars ha have complex producion srees, pars where he raw maerial should be ordered in high quaniies and pars produced by suppliers ha are almos bankrup. As a resul, in hese cases he spare par price will increase afer he vehicle producion ends. The scope of he sudy is narrowed down o spare pars ha are produced by Nedcar B.V. Moreover, safey pars and compeiive pars are excluded from he sudy. For safey pars i is prohibied o sell hem second hand. Compeiive pars are also available a he unbranded marke and herefore spare par availabiliy is no problem. In he proposed siuaion, MME has he opporuniy o acquire spare pars in hree differen ways. The firs opion o acquire spare pars is o place a final order a he curren supplier. For he case sudy his supplier is Nedcar B.V. This company ends he iv

5 producion of pars when he vehicle producion, where he par is used for, is ended. Thereafer MME has he opion o coninue producion a a hird pary. In conras o he final order opion fixed seup coss should be paid o he supplier. As replenishmen s, Q replenishmen policy is chosen, because of he simpliciy o implemen i, policy a ( ) he spare par demand characerisics and he seup coss ha have o be included. Afer he las exra producion bach he purchase of remanufacured spare pars is used o reduce he uncerainy of sock ous and obsolee sock a he end of he service ime horizon. This opion is defined as he possibiliy o buy remanufacured spare pars from car dismanlers. In his case a simple order up o level as replenishmen policy is chosen, because no seup coss per bach are included and he demand characerisics. Based on he proposed siuaion a life cycle cos model as funcion of τ, defined as he expeced final order period, and N, defined as he las period where exra producion is allowed, is developed. The coss ha are included in he life cycle cos model are purchase coss, invenory holding coss, backorder coss and disposal coss a he end of he service period. The developed model is used o find he opimal spare par procuremen sraegy for he spare pars included in he case sudy. The opimal values of he decision variables and oal coss can be found in able 1. *Confidenial* Table 1, resuls per spare par The model is validaed exensively and a sensiiviy analysis is conduced o es he robusness of he model. The following conclusions can be drawn afer his maser hesis projec: The model proposed by Inderfurh and Mukherjee (2008) canno be used in he auomoive indusry, because muliple assumpions (i.e. random produc reurns, sufficien reurns needed o cover remaining demand) are no valid. A new opion o acquire spare pars is inroduced. MME can purchase remanufacured spare pars a car dismanlers. The advanage of his opion is ha i can be used o reduce uncerainy a he end of he service ime horizon. As a resul of his opion, i is no longer necessary o add a fixed percenage o he las exra producion bach, which resuls in less obsolee sock. I is possible o deermine he opimal spare par procuremen sraegy and he accompanying coss. These coss can be used by MME for budgeing he coss for he oal service ime horizon per par, vehicle model, ec. The spare par procuremen model consiss of approximaions o make i useable in pracice. The auomoive marke is subjec o muliple changes nowadays. To deermine he opimal spare par procuremen sraegy MME can conduc scenario analyses wih he model. The consequences of differen scenarios can be evaluaed and he opimal spare par procuremen sraegy can be chosen. v

6 I was no possible o compare he proposed model wih he sraegy used in he curren siuaion, because insufficien daa was available. However, when looking o he daa available (i.e. daa abou he buffer period) i can be concluded ha when in he curren siuaion he oher decisions (i.e. relaed o he opimal bach quaniy and order level) are opimal he proposed spare par procuremen model realizes cos savings of a leas 6% based on he case sudy. Afer he sensiiviy analysis i can also be concluded ha i is necessary o deermine he invenory holding coss and he variable spare par cos price for exra producion appropriaely, because hese wo variables have a moderae effec on he opimal spare par procuremen sraegy and he accompanying coss. Furhermore, i can be concluded ha he forecased demand has a major impac on he expeced coss. However, he opimal values of he decision variables are robus o changes in demand. These opimal values of he decision variables are also robus o changes in he service ime horizon as resul of he rolling horizon principle. The purchase price for remanufacured spare pars has no much effec on he opimal spare par procuremen sraegy and accompanying coss for he parameer deviaion (i.e. from -50% unil 100%) used in he sensiiviy analysis. The following recommendaions can be made afer his maser hesis projec: The firs recommendaion is o make he program ready for implemenaion. This means ha he funcionaliy o run muliple spare pars a he same ime should be programmed. Furhermore, he user inerface should be improved. Besides hese modelling issues i is also imporan o se up a nework of car dismanlers from which i is possible o purchase remanufacured spare pars. The mos imporan recommendaion o MME is o implemen he spare par procuremen model when i is ready for implemenaion. To fi a disribuion for he demand during a period and o fi a disribuion for he demand during he replenishmen lead ime a binomial disribuion is used. I is recommended o se up a projec in which he demand paern for muliple spare par groups is invesigaed. Wih he resul of his research he demand forecas could be improved. In he ime his demand analysis is no ye compleed i is recommended o use he forecas mehod (explained in 4.5.6), which uses a dying curve o forecas he unis in operaion. The model depends on he informaion available. The more reliable his informaion is, he more reliable he oupu of he spare par procuremen model is. Wihin MME i is possible o find he appropriae values for muliple variables easily. However, here are some variables for which i is difficul o obain he appropriae values. For hese variables i is deermined wheher i is imporan o pu effor in he appropriae deerminaion of parameer values. As a resul of he sensiiviy analysis, i is recommended ha he invenory holding coss, he variable spare par cos price for exra producion and he expeced demand should be deermined appropriaely. I is also recommended o updae he spare par procuremen sraegy annually. Furhermore, i is recommended o implemen he opimal procuremen sraegy vi

7 for he curren period (i.e. a rolling horizon) only. The advanage of his mehod is he possibiliy o anicipae on changing markes. In pracice his means ha he order level, s, and he opimal bach quaniy, Q, should be updaed annually. Furhermore, he momen as from which i is possible o purchase remanufacured spare pars from car dismanlers can be adjused o reac on changes in he marke. A recommendaion for furher scienific research is o compare he resuls of his spare par procuremen model wih he resuls of a simulaion sudy. Wih his simulaion sudy i is possible o examine wheher he model reflecs he environmen of he auomoive indusry. vii

8 III. Preface This maser hesis is he resul of my graduaion assignmen a Misubishi Moors Europe B.V. in Born, he Neherlands. This hesis represens he final piece of my sudy Indusrial Engineering and Managemen Science a he Eindhoven Universiy of Technology. Firs of all, I would like o hank Henny van Ooijen, my primary universiy supervisor, for his enhusiasm and suppor during he projec. The discussion and brainsorm sessions we had were very helpful for he progress of my projec. Furhermore, I would like o hank Gudrun Kiesmüller, who is an exper in he field of spare par managemen, for her feedback on my repors. Furhermore, I would like o hank her for refining he models I was working on. I would like o hank Harry Manders for giving me he opporuniy o conduc my maser hesis projec a Misubishi Moors Europe B.V. Furhermore, I wan o hank him for all his ime and effor he invesed in my projec. Also, I would like o hank Jamie Durinck, who helped me wih programming he sofware ool, and he oher colleagues of he Business Logisic Developmen deparmen, who were always available for quesions and made my say a pleasan one. Moreover, I would like o hank Marco Reijnders of he Invenory Conrol deparmen and Egber de Groo of he Purchase deparmen of Nedcar B.V. for heir help. Finally, I would like o hank my family and friends who have suppored me during my five years of sudy a he universiy. Las bu surely no leas I would like o hank my girlfriend Gerda for her suppor and general feedback. Tom Zanders, Sepember, 2009 viii

9 IV. Table of Conens I. Absrac... iii II. Managemen summary... iv III. Preface... viii IV. Table of Conens... ix 1. Company descripion Misubishi Moors Company Service and logisics Problem definiion and Research assignmen Iniial assignmen Environmenal conex auomoive indusry Common spare par characerisics Curren spare par procuremen Spare par procuremen in he normal phase Spare par procuremen in he final phase Remanufacuring aciviies Lieraure review Spare par managemen in he final phase Research assignmen Mehodology Repor layou Analysis Pars invesigaed Resul quaniaive analysis Uni cos price Demand per year Capial invesmen final order Spare par volume Invenory holding coss Final order period lengh Resul qualiaive analysis ix

10 3.4 Analysis obsolescence and final order Scope Geographical Alernaive sources Safey pars Compeiive pars Summary Developmen of soluions Proposed new siuaion Common cos model Decision variables Deailed cos model Coss and assumpions final order Coss and assumpions exra producion Coss and assumpions purchase of remanufacured spare pars Toal deailed cos model Inpu spare par cos model Variable spare par price ( c f, c E, c R) Backorder coss ( p) Disposal coss ( d ) Seup coss ( F E) Invenory holding coss ( h) Demand model ( D, D, L) Heurisics Final order quaniy ( y ) Exra producion ( s, Q ) Purchase of remanufacured spare pars ( S ) Model validaion and verificaion Resuls Resuls case sudy x

11 5.2 Sensiiviy analysis Invenory holding coss ( h) Variable spare par cos price for exra producion ( c E) Purchase price remanufacured spare pars ( c R) Expeced demand ( pi N) Service ime horizon (T ) Implemenaion Willingness o implemen Before implemenaion Mainaining he ool Conclusion and recommendaions Conclusions Recommendaions Glossary of erms References Appendix 1 European Pars Disribuion Nework Appendix 2 Revenue and sock quaniy and invesmen Appendix 3 Demand rank disribuion Appendix 4 Organizaion char MME Appendix 5 Procuremen and preparaion goods receip Appendix 6 Phase ou process Appendix 7 Phase ou process individual pars Appendix 8 Demand forecas analysis Appendix 9 Included spare pars case sudy Appendix 10 The model proposed by Inderfurh and Mukherjee Appendix 11 Overview of used noaion Appendix 12 Validaion and verificaion Appendix 13 Inpu case sudy Appendix 14 Implemenaion xi

12 1. Company descripion In his chaper firs in paragraph 1.1 a company descripion of he case company is given. Thereafer, in paragraph 1.2, i is explained which producs he company sells and wha his means for service and logisics. Also some numerical figures abou revenue, quaniy of spare pars in invenory, capial ied in invenory, and fill rae are presened in his paragraph Misubishi Moors Company Nearly 100 years ago Misubishi produced heir firs moor vehicle, he A Model. In 1970, Misubishi Moors Company (MMC) was se up as an independen company o manufacure moor vehicles. Today MMC has manufacuring faciliies in 30 counries over he world. The sales and afer-sales organizaion serves more han 170 counries. In 2007 MMC sold 1,360,000 vehicles and oal revenue was 23,258 million. In 2007 hey were he fifeenh larges vehicle manufacurer in he world and hey produced 2% of he oal world auomobile producion (OICA, 2008). The corporae philosophy of MMC is formulaed as follows: We are commied o providing he umos driving pleasure and safey for our valued cusomers and our communiy. On hese commimens we will never compromise. This is he Misubishi Moors way. In 2002, Misubishi Moors Europe B.V. (MME), a subsidiary of MMC, was founded o coordinae he sales and disribuion of vehicles in Europe. They are also responsible for he sales and disribuion of spare pars and accessories in Europe. Headquarers of MME is based in Amserdam, he Neherlands. Moreover hey have wo producion faciliies, in Born, he Neherlands, and Turin, Ialy. Also hey have wo disribuion ceners for handling and soring spare pars and accessories. In Born, The Neherlands, he European Pars Disribuion Cener (PDC) is locaed and a small regional disribuion cener (RDC) is based in Madrid, Spain. The company serves 2,500 dealers in 36 counries. In 2007 MME sold 227,630 vehicles and he revenue was 5,750 million. Moreover, he European design sudio Misubishi Design Europe (MDE), he research and developmen cener Misubishi R&D Europe (MRDE) and he Misubishi Moors Moor Spors (MMSP) are based in Europe. 1.2 Service and logisics MME offers, nex o vehicles, spare pars and accessories for heir vehicles o dealers and disribuors. The PDC is locaed in Born, he Neherlands, and a RDC is based in Spain. I is imporan o make a disincion beween pars for producion and pars for service. In he remaining repor pars for service are defined as spare pars. These spare pars are sored in he PDC or RDC. The pars for producion are sored a Nedcar B.V. In Appendix 1 he European Par Disribuion Nework is showed. Furhermore, in his Appendix a able can be found in which i is lised which dealers are direcly supplied by 1

13 MME and which dealers are supplied by disribuors. These disribuors are also supplied by MME. MME sells vehicles in he Neherlands wih a sandard warrany period of 3 years. The lengh of his warrany can be differen per counry. Once he warrany period expires cusomers are offered he possibiliy o exend his warrany period. In his period mainenance, excep he scheduled mainenance, is free of charge. Therefore, cusomers are more willing o ge pars, which do no influence he drivabiliy of he vehicle, repaired. Afer he warrany period he willingness o repair a broken par is dependen on he criicaliy of he par (i.e. for he drivabiliy of he car), age of he vehicle, and he repair cos, which includes he cos price of he spare par and he coss of he man hours needed o replace he broken spare par (Richie and Wilcox, 1976). Besides he warrany obligaions MME has he obligaion o supply spare pars for 10 years afer a vehicle producion sop. The company policy adds anoher 5 year of service obligaion o please cusomers. This can be seen in line wih he findings of Cohen e al. (2006), who saed ha in he auomoive indusry he afer sales service is correlaed wih he cusomer inends o repurchase a vehicle of he same brand. The revenue of MME of spare pars in 2008 was 245,576,000. In Appendix 2 he revenue per year since 2004 is presened. I can be seen ha he revenue has increased wih 30% since In January ,967 differen SKU s are socked and he oal capial invesmen in sock is 81,170,000. Also in Appendix 2 i can be seen ha he capial invesed in sock increased from 30,834,000 o 81,170,000 since January This increase is parly he resul of aking over he disribuion cener in Germany. Furhermore, i is showed ha he quaniy of pars on sock increased significanly from January 2000, from 2.8 million pieces in January 2000 o 11 million pieces in January The fill rae, which is defined as he percenage of cusomer demand which is saisfied immediaely off-he-shelf, flucuaes around he 95%, wih a minimum of 93% and a maximum of 97% per monh (Verkoelen, 2009). MME s curren policy is o achieve a leas 90% availabiliy on all pars business, excep for Direc Dealer Delivery (DDD) for which i requires 95% (Anonymous, 2003). To offer sufficien service o dealers and disribuors MME offers a wide range of service levels, ranging from 1 o 4 days for he hree normal orders and significan longer lead imes for special orders. The following order ypes can be disinguished: Normal Order Sock Order (SO) Daily Order (DO) Vehicle-Off-Road Order (VOR) Iniial Order (IO) Promoional Order (PO) A sock order can be described as a normal sock replenishmen order. A dealer or sockholding disribuor can order once a week on a fixed day. The shipmen preparaion ime, defined as he ime beween he day he order is placed and he day of deparure 2

14 from MME s PDC, is hree days. The ransporaion ime from he PDC o he cusomer is approximaely one day. The nex normal order, which is he daily order, is used for pars which should have been covered by he sock order, bu where he sock order was already released and i is expeced ha he normal order does no cover demand. The shipmen preparaion ime for hese orders is one day jus like he ransporaion ime o he cusomer. The las normal order ype is he vehicle-off-road order, which is used for pars ha are urgenly required. Pars are urgenly required when a vehicle sands sill in he workshop of he dealer. These pars are sen o he cusomer he same day hey are ordered. The oal ime, which consiss of shipmen preparaion ime and ransporaion ime, needed o deliver he spare pars o he cusomer is one day. Besides hese normal orders here are also wo special orders. An iniial order is only used when a new vehicle model is launched. The problem in his case is ha MME s PDC has no socked he spare pars of he new vehicle. For inernal convenience a disincion is made beween sock orders and iniial orders o make accurae predicions of fuure demand. The las order ype is used for promoional purposes. Jus like he iniial order he promoional order is used for pars ha are no socked already. Anoher characerisic ha hese wo special orders have in common is ha hey encouner longer lead imes han he normal orders. The difference is ha he promoional order is usually used for accessories, whereas he iniial order is only used for spare pars which are inroduced in a new vehicle model. 3

15 2. Problem definiion and Research assignmen In he firs paragraph he iniial assignmen is described, which is based on he iniial conac wih he case company. Thereafer, in paragraph 2.2 he environmenal conex is described and in paragraph 2.3 he common spare par characerisics are presened. This is done o ge insigh in he characerisics of he auomoive indusry and MME in paricular. In paragraph 2.4 he curren spare par procuremen process is described. Subsequenly, he lieraure is reviewed o check which models can be used o solve he problem and o evaluae he curren spare par procuremen policies of MME, which is presened in paragraph 2.5. As a resul of paragraph 2.2 unil 2.5 he definiive research assignmen is presened in paragraph 2.6. In paragraph 2.7 is he research mehodology presened and in he las paragraph he layou of he repor is showed. 2.1 Iniial assignmen The iniial assignmen is based on he firs inake meeing wih an employee and execuive of he Business Logisic Developmen deparmen. They saed ha MME has difficulies wih he spare par procuremen afer he producion of an accompanying vehicle ends. These difficulies are caused by muliple reasons. In his afer sales period he demand for spare pars decreases rapidly. Besides his decrease in demand also he demand uncerainy increases. Furhermore, i is quie normal ha afer he producion period of vehicles he uni cos price per spare par increases significanly. MME has he possibiliy o order an amoun, which covers he remaining demand, ha is included in he las producion bach for manufacuring new vehicles. To reduce he uncerainy of going ou of sock an exra percenage of he expeced demand is added. As a resul of he aforemenioned, usually much obsolee sock is lef afer he service obligaions are achieved. The iniial assignmen is herefore o develop a model ha opimizes he spare par procuremen in he afer sales period. 2.2 Environmenal conex auomoive indusry In he auomoive indusry vehicles are sold o cusomers and hese cusomers go o hird paries for mainenance. A problem ha occurs is ha demand, for spare pars ha are replaced when correcive mainenance is done, follows a random paern (Zanders, 2009). For spare pars ha are replaced when scheduled mainenance is carried ou a more predicable demand paern can be found (Zanders, 2009). Therefore, in he auomoive indusry here are wo groups of spare pars: pars ha have more or less a predicable demand paern and pars ha have a random paern. Anoher environmenal variable ha can be considered is he spare par life cycle. As discussed in he lieraure (Foruin, 1980) here are hree phases, namely he iniial, normal, and final phase. In he auomoive indusry he same holds. In his indusry he mos complex phase for spare par procuremen is he final phase. However, here is anoher variable ha influences he demand. I is he age of he vehicle ha predics he willingness of he cusomer o replace a cerain broken par. Cusomers wih newer vehicles are more willing o repair broken pars, which do no influence he drivabiliy, han cusomers wih older vehicles, which will influence demand (Foruin, 1980). The nex environmenal variable is he 4

16 service ime horizon. In he auomoive indusry i is quie normal o deliver service up o fifeen years afer he vehicle is aken ou of producion. A vehicle is produced on average six years and herefore he oal service horizon becomes weny-one years. The service ime horizon is long, bu he lengh is known in advance. In he auomoive indusry i is possible o remanufacure cerain pars. However, only pars ha can be remanufacured economically beneficially are usually remanufacured. Anoher reason o repair pars is o guaranee spare par availabiliy (Zanders, 2009). Wih respec o his remanufacure issue i can be menioned ha car manufacures are legally obligaed o ake back heir vehicles (Direcive 2000/53EC). However, in pracice he recycling of end of life vehicles is usually carried ou by independen car dismanlers. These car dismanlers have random reurns of end of life vehicles. One sep in he car dismanling process is o reuse or remanufacure valuable spare pars. Car dismanlers sell hese valuable spare pars o he marke. The las environmenal variable ha has an influence on spare par managemen in he auomoive indusry is he possibiliy o reorder spare pars. Wheher i is possible o reorder spare pars depends largely on he phase of he life cycle he spare par is in (Zanders, 2009). In he auomoive indusry also spare pars ha canno be repurchased a suppliers are supplied o cusomers, which are dealers and disribuors. 2.3 Common spare par characerisics MME sells vehicles and spare pars o cusomers in Europe. To comply wih he obligaions and company policy approximaely 110,000 differen spare pars are kep on sock. This is only 12 percen of pars ha are used in vehicles ha are driven by cusomers nowadays. The spare par characerisics vary considerably; he following characerisics can be given: Purchase prices for spare pars range from 0.01 o 6,000 per par. 3,000 ou of 110,000 differen spare pars are remanufacured. Demand ranges from 0 o more han 1500 order lines per year per ype; In Appendix 3 he demand rank disribuion can be found. Remaining service imes of spare pars vary from 0 o 20 years, depending on he year a vehicle is produced and he demand disribuion of a specific par. The oal sock has a value of 81 million (January 2009). Regularly, due o a producion sop of a specific par, he supplier forces MME o place a final order o cover he demand during he remaining service period. When looking a he above menioned characerisics and he marke MME operaes in, i is logical ha problems wih regard o excess invenory, which is defined as invenory ha is no used when service obligaions are expired, appear. Anoher problem ha MME has o deal wih is he probabiliy of having sock ous. These problems arise especially in final order siuaions where large quaniies should be purchased o fulfill all service obligaions and demand is uncerain. 5

17 2.4 Curren spare par procuremen In his paragraph he spare par procuremen process in he normal and final phase a MME is elaboraed. The difference beween hese wo phases is ha in he normal phase i is possible o reorder spare pars, whereas in he final phase i is usually impossible o reorder spare pars. When i is possible o reorder spare pars in he final phase of he life cycle i is a significan higher prices. In addiion o he spare par procuremen in hese wo phases also he curren remanufacuring aciviies a MME are presened. MME s Invenory Conrol deparmen (and a he end of course MMC) is responsible for he availabiliy of spare pars in Europe. To assure spare par availabiliy he Invenory Conrol deparmen has o cooperae wih he Purchase deparmen of Nedcar B.V. Nedcar B.V. is jus like MME a subsidiary of MMC. A Nedcar B.V., which is locaed in Born, he Neherlands, muliple Misubishi models are produced. This cooperaion is necessary, because he Purchase deparmen ses up he conracs wih suppliers. In Appendix 4 he organizaion char of MME is presened. The Purchase deparmen of Nedcar B.V. is no included, because i is a privae company. In he following paragraphs he processes involved wih spare par procuremen are elaboraed Spare par procuremen in he normal phase In he normal phase of he spare par life cycle, demand is more or less consan over ime (Foruin, 1980). As a resul i is easier o predic demand and herefore a minimum order quaniy policy can be used for example. The Invenory Conrol deparmen of MME is responsible for ordering he righ quaniy a he righ ime a he righ place a he righ price. The Invenory Conrol deparmen cooperaes wih he Purchase deparmen of Nedcar B.V., which is responsible for seing up conracs wih suppliers. In Appendix 5 a process map for he spare par procuremen and preparaion goods receip is showed. I can be seen ha he invenory conrol sysem, used by he Invenory Conrol deparmen of MME, checks every day wheher here are backorders. When here are backorders he supplier is conaced o ge informaion abou he reason for delay and is asked for he new delivery condiions. For he normal purchase orders he sysem proposes order quaniies once a week on a fixed day. The employees of he Invenory Conrol deparmen check he correcness of he proposed order quaniies by using sales forecass, hisorical sales, minimal order quaniies, ec. When he proposed order quaniies are sufficien he order is placed a he supplier, oherwise he order is changed or cancelled. When an order is placed he supplier confirms he order and he order daa is processed Spare par procuremen in he final phase The period from he erminaion of vehicle manufacuring unil he end of service is called he final phase. When Nedcar B.V. erminaes vehicle manufacuring, he demand for pars will decrease rapidly, because usually less spare pars are necessary for service han pars for he producion of vehicles. As a resul, he supplier will probably increase prices when producion of spare pars is coninued afer he erminaion of vehicle producion. Furhermore, i is possible ha he supplier erminaes he producion of spare 6

18 pars. Then anoher supplier is needed. The prices of he spare pars produced a he new supplier are probably higher han he price per spare par produced during he producion of vehicles. The reason is ha he supplier may have an alernaive produc ha is more profiable han he low volume producion of spare pars for he afer sales marke. In his case i could be economically ineresing for MME o place a final order ha can be produced wih he las bach for he producion of vehicles. Therefore, he mehods ha are used in he normal phase of he spare par life cycle o achieve spare par availabiliy are no suiable anymore in he final phase. However, here are pars, which have a high demand in he afer sales period and can be produced very easily. These pars are defined as compeiive pars and can be purchased a oher companies in his period. Examples of such compeiive pars are brake pads, bumpers, wiper blads, ec. For hese spare pars i is usually no problem o assure spare par availabiliy during he lifecycle. There are wo differen processes ha can be described o deal wih spare pars in he final phase. The firs one is he more general one, which invesigaes he consequences of he inroducion of a new vehicle model or varian. In he producion period, which is approximaely six years, usually a model improvemen, which leads o design changes, occurs. The resul for afer sales could be ha demand of spare pars used in he old vehicle model and no in he new will decrease rapidly. To idenify and deal wih he consequences a phase ou process is defined, which can be found in Appendix 6. The Purchase deparmen of Nedcar B.V. checks wha he consequences are for he spare pars ha are included in he old vehicle model. Then informaion is colleced abou he spare pars of which he inroducion of a new vehicle model has an impac on. Thereafer a meeing is organized where he managers of Purchase, Invenory Conrol and Produc Design are presen. In his meeing poenial problems and poenial soluions for hese problems are discussed. However, here is no common procedure o deermine he cos opimal soluion. When for spare pars ha are produced a Nedcar B.V i is decided o ousource producion a buffer sock is ordered a Nedcar B.V. This buffer sock is equal o he demand during he period necessary for adjusing and ransporing he machinery o he exernal company. For pressed pars his buffer period is a leas a half year. The second process is used when conrac condiions for a specific spare par change, hrough which i could be ineresing o make a final order proposal. This process can be found in Appendix 7. Usually, he primary reason for a final order proposal is he significan increase in uni cos price. This increase in uni cos price can have muliple reasons which are elaboraed exensively in paragraph 3.3. When i is decided by he managemen ha a final order should be made o cover he demand in he remaining service period he Invenory Conrol deparmen is responsible for calculaing he quaniy ha is necessary. For he final order calculaion MME uses informaion abou he unis in operaion (sum of he vehicles on he marke per model ype in he counries hey are responsible for), hisorical sales of spare pars, and he lengh of he remaining service period. Wih his informaion i is possible o calculae he usage raes per year per spare par up o now. The mos appropriae usage rae is chosen for forecasing he remaining demand. For some pars also a rend correcion facor is added, which is calculaed by comparing he usage rae of wo or more sequenial years. 7

19 The choice of he mos appropriae usage rae and he rend correcion facor is made based on experience of he employee of he Invenory Conrol deparmen. To calculae he demand per year he usage rae is muliplied wih he unis in operaion and opionally wih a rend correcion facor. The demands per year are summed up and he resul is he demand necessary o cover he remaining service period. To deal wih demand uncerainy an exra percenage, ranging from 0 o 50 percen, is added o he oal final order. The choice of his percenage is based on experience and risk aversion of he individual employee. When evaluaing he curren siuaion a few commens should be made. The firs commen is abou he unis in operaion. The informaion abou he unis in operaion, which is provided per vehicle model, is supplied by an exernal company. However, each vehicle model has many varians (e.g. an engine varian, an inerior varian, ec.), which causes a problem; since several spare pars are no used in every vehicle of he specific model. When looking a he usage rae i can be concluded ha he usage rae used for he forecass is chosen based on experience. A more accurae forecas probably could be made when applying a usage curve ha is based on he spare par ype. In he lieraure Moore (1971) describes ha he demand of spare pars in he auomoive indusry can be characerized, in 85% of he cases, by hree funcions. In paragraph 2.5 a deailed explanaion of he findings of Moore (1971) can be found. When comparing hese proposed funcions wih he demand forecass found by he Invenory Conrol deparmen i can be concluded ha wih hese average usage raes he demand is slighly overesimaed. As a resul, here is a poenial for obsolee sock, because more is ordered han probably is demanded. For a graphical represenaion of his comparison see Appendix 8. However, an exensive sudy on spare par demand is necessary o draw conclusions abou he correcness of he used demand forecas echnique. Anoher commen ha should be made is abou he cusomer loyaly wih respec o mainenance a a Misubishi dealer. According o Cohen e al. (2000) cusomer loyaly is dependen on he age of he vehicle and he level of repair required. I seems ha cusomer loyaly decreases for ligh repairs and scheduled mainenance when vehicles become older. Therefore, he demand for he remaining service period could be lower han forecased Remanufacuring aciviies In Ocober 2006 Misubishi has sared wih remanufacuring aciviies. Since Ocober 2006 hey sold 16,239 remanufacured spare pars, which resuled in a cumulaive revenue of 6,039,073. The dealers and disribuors send back broken cores ha can be remanufacured profiable. MME checks wheher hese reurned cores are correcly documened and aferwards he reurned cores are sen o he remanufacurer. The remanufacurer sores he broken cores unil MME orders remanufacured spare pars, herefore his can be seen as a Pull conrol policy (Van der Laan, 1997). When he order is ready he remanufacurer sends he spare pars o MME where hey are sored. The 8

20 remanufacured spare pars ge a par number code ha differs from he one ha new spare pars of he same ype ge. These remanufacured spare pars are offered o he marke as a disinc produc wih a lower price, which is approximaely percen of he price of a new spare par of he same ype. When dealers or disribuors order a spare par ha is included in he remanufacuring program hey are forced o send he broken spare par back o Misubishi. This can be seen as he deposi-based relaionship described by Oslin e al. (2008). When a dealer or disribuor sends a broken par, which is included in he remanufacuring program, back hey ge a reward. However, when hey don send back he broken par wihin 13 weeks a penaly cos has o be paid. 2.5 Lieraure review In his paragraph a review of he lieraure ha is available in he field of spare par managemen is presened o ge insigh in he differen models ha can be used for spare par managemen. An exensive review can be found in Zanders (2009). This paragraph sars wih he key quesions of logisic conrol. Thereafer models ha can be used o deermine he opimal spare par procuremen in he final phase are discussed Spare par managemen in he final phase Firs he key quesions of logisic conrol are presened. Foruin and Marin (1999) sae ha four imporan quesions for conrolling spare pars should be answered: Which iems are needed as spare pars? Which spare pars have o be socked? When do we need o (re)order? How much do we need o (re)order? The answers on hese quesions depend on he environmenal conex, which is described in secion 2.2. In Zanders (2009) an exensive review is presened on he environmenal variables ha affec spare par managemen and hus he answers of hese quesions. In his hesis only he spare par procuremen in he final phase is discussed, because oher phases are ou of scope. An exensive review for spare par managemen in he normal phase can be found in Zanders (2009). The final phase of a spare par sars when he producion of par ends. This final phase is usually he larger par of he service horizon and i is also called he end of life period (EOL) (Teuner and Foruin, 1999). Typical characerisics of he final phase are declining demand raes and he difficuly of esimaing he remaining demand. According o he lieraure review (Zanders, 2009) suppliers ofen force manufacurers o place a final order in he final phase of a spare par. According o Caani and Souza (2003) here are benefis for he manufacurer when delaying a final order decision. They sae ha a longer delay is always as good as or beer han a shorer delay under he same circumsances (Caani and Souza, 2003). Furhermore, i is menioned ha hese benefis are obained early. Wheher his finding is useful in pracice is doubful, because in he 9

21 final phase of he spare par life cycle usually muliple cos parameers (for example he uni cos price, fixed seup coss, ec) change. However, when he manufacurer produces pars in-house benefis can be obained when placing a final order. Some of he benefis for he manufacurer are for example (Moore, 1971): Reduced file mainenance as engineering drawings and manufacuring insrucions. Scrap paymens and ax wrie-offs for discarded producion ools. Reduced purchased componens invenory coss. Reduced required floor space. These benefis can be obained when demand is accuraely forecased. For he auomoive indusry Moore (1971) found ha when hisorical sales daa are ransformed from an arihmeic scale o a logarihmic scale and he years of sales were indexed, demand paerns ha describe 85% of he pars considered can be found. The daa ha he uses is quarerly, seasonally adjused sales informaion. The hree demand paerns ha can be used for 85% of he pars are he eclipse, parabola, and he sraigh line. He found ha he ellipical decay funcion can be used for he demand paern of major engine and ransmission pars, body panels, axles, springs and windshields. The parabolic funcion can be used for moderaely priced essenials and several cosmeic iems for higher priced vehicles, for example lamp assemblies, valves, connecing rods, speedomeers, fuel and waer pumps and chrome body rim. The las funcion is he linear decay funcion, wih exponenial decay when he logarihmic axis is used, which can be used for a wide range of general mainenance pars such as shock absorbers, brake cylinders, pads, valve lifers, gaskes, brackes and small fiings. Wih hese paerns i is possible o predic he all ime requiremen for specific pars. Predicing he demand per year, up o 15 years in he fuure, for a specific spare par is very complex. According o Foruin (1980) his is because here are many facors ha influence demand in he final phase. Some examples of hese facors are: The cusomer s preference o buy a new produc insead of having he broken produc repaired. The cusomer s decision no o repair a broken par, his can be he case when a par is non funcional or he cusomer does no need he par. Improved qualiy of spare pars. New spare pars, wih improved qualiy, are inroduced on he marke, which can be used as subsiuion of he old spare pars. Ohers, like Richie and Wilcox (1976), sae ha he less criical a spare par is for he funcioning of a machine, he quicker he demand of such a spare par decreases. The model o calculae he final order, which is proposed by Richie and Wilcox (1976), also akes ino accoun he criicaliy of he machine funcionaliy, he number of machines sold, and he failure rae per machine hour. The problem of his model is he compuaional effor ha is necessary o calculae he differen parameer values. 10

22 Models ha require less compuaional effor are presened by for example Foruin (1980). From hisorical daa analysis he concludes ha he demand per year can be esimaed wih a non-saionary and uncorrelaed Gaussian process and he mean of his process decreases exponenially during he years in he final phase. An imporan assumpion ha he made is ha he expeced demand during he EOL phase is exponenially decreasing wih rae 0.7, which means ha he demand in a specific year is 70% of he demand of he previous year (Foruin, 1980 and Teuner and Foruin, 1999). Moreover, in he aricle (Foruin, 1980) muliple formulas are derived which presen he relaionship beween he degree of availabiliy, safey sock, lengh of he final phase, shorage risk and obsolescence risk on he one hand, and he saisical properies of he demand process of spare pars on he oher hand. Wih he findings of Moore (1971) and Foruin (1980), Teuner and Foruin (1999) ried o deermine wo cos opimal models. The firs model places a final order a he beginning of he EOL phase and removes all remaining sock a he end of he service period. The oher model adds he possibiliy o remove sock a each ime inerval. In boh models i is no possible o reorder spare pars. When comparing he wo models i can be seen ha here is a small difference in expeced coss. This difference is however quie small, herefore he simple model is sufficien (Teuner and Foruin, 1999). Furhermore, hey assume ha demand and supply of slow moving spare pars are driven by a Poisson process. In Teuner and Foruin (1998) he model ha is proposed in Teuner and Foruin (1999), is esed in pracice a Philips. For calculaing he final order hey use he EOL demand and he price of a spare par. The penaly coss are defined as he coss of a new produc. However, hese coss are no necessary in case he failed produc can be repaired using a differen spare par or when he broken spare par is non-funcional (Teuner and Foruin, 1998). I is concluded ha he model proposed in Teuner and Foruin (1999) is far from opimal. Therefore, hey inroduce some improvemens o opimize he accuraeness of he soluion for he final order problem. Unil now models are described where i is only possible o place a final order. Wih hese models i is no possible o check which influence he possibiliy of ordering spare pars afer he final order, agains a higher uni cos price, has. Teuner and Haneveld (2002) use he above described models as basis and add he possibiliy of ordering spare pars afer he final order. The price per spare par of pars ordered afer he final order is higher han he price per spare par of pars ordered in he final order. Two imporan assumpions ha are made are ha he service ime horizon is known in advance and ha demand is saionary and follows a Poisson process. Furhermore, i is no possible o dispose pars before he end of he planning horizon. In Teuner (1998) muliple differen models o calculae final order quaniies are proposed. The firs model considers an environmen in which i is possible o reorder spare pars a a higher price han in he final order and where here is one cenral warehouse. The nex model considers he same conex as in model one, however i resrics he range of spare pars o spare pars wih low demand and a shor lead ime. The hird model can be used when he price of a spare par of pars ordered afer he final order is higher han he price of a spare par in he final order. Furhermore, i considers 11

23 he availabiliy of repair kis and he presence of one cenral warehouse. The las model can be used when i is possible o reorder spare pars afer he final order and when service is offered o muliple cusomers. The assumpion made in all models is a fixed service horizon period. Assumpions ha are made in muliple models are saionary demand, which is modelled as a Poisson process, discouned coss, presence of ordering coss, and he possibiliy of remanufacuring and negligible lead ime (Teuner, 1998). The mos recen model found in lieraure is ha of Inderfurh and Mukherjee (2008), who exend he model of Teuner and Haneveld (2002) wih he possibiliy o acquire spare pars from remanufacuring. They consider a company ha produces pars for producion and for service. When producion of vehicles ends i could be ha i is no economically ineresing o coninue producion only for service. They conclude ha such a company has hree possibiliies o acquire sufficien spare pars: Final order Exra producion Remanufacuring The firs opion is o place a final order when he company decides o sop producion. The final order is added o he las lo of producion. Afer his lo producion is sopped and he ooling is sold or scrapped. In his case he cos price per produc is low, because his lo is combined wih he las producion lo. Therefore, no exra seup coss are included and bach quaniies are large. A disadvanage of he final order is he large uncerainy in demand. This uncerainy is caused by wo reasons; he firs reason is he lack of knowledge abou he demand disribuion and he second reason is he long period ha should be forecased. Anoher disadvanage is ha producs are kep in sock for a long period, which will resul in a large invesmen in invenory and sorage capaciy. Anoher opion o acquire spare pars is o ousource producion. A disadvanage of his opion is ha he uni cos price is much higher han he uni cos price in he final order. The reason for his uni coss price increase is ha he producion company produces in small los and fixed coss for ordering are added. The advanage is less uncerainy in demand han in he case of a final order; his is due o a relaively small forecas period. When ousourcing is an opion, i neverheless can be ineresing o place a final order. This is especially he case when fixed coss are high. The coss of invenory holding and obsolescence or sock ous should be weighed wih he fixed coss and higher produc prices when ordering a a hird pary. 12

24 Figure 1, Demand for new producs, spare pars, and producs reurns adaped from Inderfurh and Mukherjee (2008) The las opion for acquiring spare pars is remanufacuring. This opion is considered as a supplemen o he final lo. A characerisic of remanufacuring is he moderae coss of producion hrough remanufacuring. The cos of a remanufacured iem is usually less han he coss of exra producion and somewha more han he cos of an iem in he final lo. A disadvanage of his opion is ha here is uncerainy in he quaniy, iming, and qualiy of reurns. Inderfurh and Mukherjee (2008) assume ha produc reurns occur randomly. In figure 1 he underlying dynamics of demand for spare pars and supply of reurned used producs is showed. 2.6 Research assignmen Especially in he auomoive indusry he final phase of he spare par life cycle is he mos complex one. As menioned in he lieraure review (Zanders, 2009) i is in his phase usually no possible o reorder. When i is neverheless possible o reorder spare pars afer he final order he price is usually higher han in he normal phase. According o he lieraure i can be concluded ha here are hree opions o acquire spare pars in he final phase of he spare par life cycle; placing a final order, exra producion (wih a higher variable uni cos price han in he final order), and remanufacuring. In his final phase here are large risks of having sock ous or having excess invenory in he final phase. As a resul of he environmenal conex and he spare par characerisics of he auomoive indusry on average 50% of he cusomers are facing unnecessary delays in geing vehicles repaired, because he righ spare pars are no a hand. Furhermore, i is esimaed ha in he auomoive indusry each year 23% of he pars become obsolee (Cohen e al., 2006). Anoher imporan poin o menion is ha here is a direc relaion beween sock prices and he afer sales performance of companies. In he auomoive indusry he afer sales performance is correlaed wih he cusomer inend o repurchase a vehicle (Cohen e al., 2006). Anoher reason for he growing imporance of spare par managemen in companies is he decreasing produc life cycle and he increasing compeiion beween companies. The resul of hese wo rends is an increase in demand variabiliy (Käki, 2007). The problem of MME is ha hey do no know how much should be ordered per procuremen opion per ime uni. Furhermore, hey do no know how much spare pars are available for remanufacuring. Therefore, he main goal of he projec is o develop a 13