Joint optimization of component reliability and spare parts inventory for capital goods

We consider an OEM who is responsible for the availability of its systems in the field through service contracts. Upon a failure of a critical part in a system during the exploitation phase, the failed part is replaced by a ready-for-use part from a spare parts inventory. In an out-of-stock situation, a costly emergency procedure is applied. The reliability levels and spare parts inventory levels of the critical components are the two main factors that determine the downtime and corresponding costs of the sys- tems. We introduce a quantitative model for the joint optimization of these two levels. We formulate the portions of Life Cycle Costs (LCC) which are affected by a compo- nent's reliability and its spare parts inventory level. These costs consist of design costs, production costs, and maintenance and downtime costs in the exploitation phase. We conduct exact analysis and provide an efficient optimization algorithm. In our numer- ical experiment which is based on real-life data, our method leads to significant cost reductions in comparison to a method that ignores costs in the exploitation phase when the reliability level is determined. We also show that the optimal reliability level also strongly depends on the component type (cheap or expensive), the size of installed base, the downtime penalty rate, and the lifetime of the system in our experiment.