End-of-life inventory decisions for consumer electronics service parts

Official URL: http://dx.doi.org/10.1111/j.1937-5956.2012.01340.x

We consider a consumer electronics (CE) manufacturer problem of controlling the inventory of spare parts in the final phase of the service life cycle. The final phase starts upon termination of the production of the part and goes on till the last service contract or warranty period expires. Final orders are considered as one tactic to satisfy demand during this period and mitigate the effect of part obsolescence at the end of the service life cycle. Previous works on final order quantity consider just repair of defective products during this phase. However, since there is a remarkable price erosion particularly for consumer electronic products it is much more cost effective to meet consumer demand for service parts by means of an alternative policy such as replacement of the defective product by a new one. Hence, we develop an exact formulation for the expected total cost function and based on that we propose policies trying to find simultaneously the optimal final order quantity and time to switch from repair to an alternative replacement policy. Numerical analysis of a real world case study sheds light over the effectiveness and advantage of these policies in terms of cost reduction and also yields insights into the quantitative importance of the various cost parameters.