Optimal Decision Rules for the Procurement, Repair, or Disposal of Spare Parts

by E. S. Phelps

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An analysis of the procurement-repair-disposal tradeoffs available to a supply manager who needs to meet periodic orders for random numbers of spare parts. The model developed assumes that orders arrive at the beginning of equally spaced time periods, which are long enough for adjustment of stock before the arrival of the next periodic demand. The decision problem is: How many reparables and serviceables should the manager dispose of at the beginning of each period? How many reparables should be repaired? How many serviceables should be procured to prepare optimally for the unknown number of future demands? The policy sought is that which minimizes the expected value of the total costs, including stockout penalties, appropriately discounted over the length of the stockage program. The problem yields to the technique of dynamic programming in that the values of two policy variations are determined simultaneously.

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