3rd IFAC Workshop on Advanced Maintenance Engineering, Service and Technology

3rd IFAC Workshop on Advanced Maintenance Engineering, Service and Technology

October 19-21, 2016. Biarritz, France
October
3rd IFAC19-21, 2016.on
Workshop Biarritz,
AdvancedFrance
Maintenance
Available Engineering, Service and Technology
online at www.sciencedirect.com
October 19-21, 2016. Biarritz, France

ScienceDirect
IFAC-PapersOnLine 49-28 (2016) 019024
On
On the
the relationship
relationship of
of spare
spare parts
parts inventory
inventory policies
policies
On
with Total Cost of Ownership of industrial policies
the
with relationship
Total Cost of of spare
Ownershipparts
of inventory
industrial assets
assets
with Total Cost of Ownership of industrial assets
Orlando Durn*. Marco Macchi**
Orlando Durn*. Marco Macchi**
Irene Roda**
Orlando Durn*. Marco Macchi**
Irene Roda**
Irene Roda**
*Escuela de Ingeniera Mecnica. Pontificia Universidad Catlica de Valparaso
*Escuela de Ingeniera Mecnica. Pontificia Universidad Catlica de Valparaso
Avda Los
*Escuela Carrera 01567,
de Ingeniera Quilpu,
Mecnica. Chile; e-mail: orlando.duran@pucv.cl.
Pontificia
Avda Los Carrera 01567, Quilpu, Chile; Universidad Catlica de Valparaso
e-mail: orlando.duran@pucv.cl.
**
Avda**LosDipartimento
Carrera 01567,di Ingegneria Gestionale,
Quilpu, Chile; e-mail:Politecnico di Milano,
orlando.duran@pucv.cl.
Dipartimento di Ingegneria Gestionale, Politecnico di Milano,
Piazza
** Piazza Leonardo
Dipartimento da Vinci,
di Ingegneria 32, 20133,
Gestionale,Milano, Italy
Politecnico (e-mail:
di Milano,
Leonardo da Vinci, 32, 20133, Milano, Italy (e-mail:
{marco.macchi;
Piazza Leonardo da Vinci, irene.roda}@polimi.it)
32, 20133, Milano, Italy (e-mail:
{marco.macchi; irene.roda}@polimi.it)
{marco.macchi; irene.roda}@polimi.it)
Abstract: This work presents the results of a simulation study aimed at characterizing the relationship of
Abstract: This work presents the results of a simulation study aimed at characterizing the relationship of
spare parts inventory
Abstract: policies the
with Total ofCost of Ownership ofaimed
industrial plants. The study is motivated
spare partsThis work presents
inventory policies withresults
Total Costa simulation studyof
of Ownership at characterizing
industrial the relationship
plants. The study of
is motivated
by theparts
spare expectation thatpolicies
several with
spareTotal
parts Cost
management decisions cause important effects in the long-term
by the expectation that several spare parts management decisions cause important effects in the motivated
inventory of Ownership of industrial plants. The study is long-term
profitability
by of industrial
the expectation assets.spare
that several Such decisions may regard, amongst
causethe others, the initial provisioning,
profitability of industrial assets. Suchparts management
decisions decisions
may regard, amongst important
the effects
others, the in the
initial long-term
provisioning,
the inventory
profitability ofpolicy and
industrial the end-of-life
assets. Such acquisition.
decisions may This work
regard, adopts
amongst simulation
the others, to
the test
initiala specific spare
provisioning,
the inventory policy and the end-of-life acquisition. This work adopts simulation to test a specific spare
parts
the inventory policy, i.e. a continuous review system, with the final purpose to assess its effects on the
partsinventory
inventorypolicy and
policy, i.e.the end-of-life review
a continuous acquisition. Thiswith
system, worktheadopts simulation
final purpose to testits
to assess a specific spare
effects on the
operational
parts performance
inventory of an industrial
policy, i.e.ofa continuous comminution
review plant
system, with and, consequently, on its Total Cost of
operational performance an industrial comminution planttheand,
finalconsequently,
purpose to assess
on itsits Total
effectsCost
on the
of
Ownership.
operational
Ownership. performance of an industrial comminution plant and, consequently, on its Total Cost of
Ownership.
2016, IFAC
Keywords: (International
Spare FederationInventory
parts management, of Automatic Control)
policy, Asset Hosting by Total
life cycle, Elsevier Ltd.ofAll
Cost rights reserved.
Ownership.
Keywords: Spare parts management, Inventory policy, Asset life cycle, Total Cost of Ownership.
Keywords: Spare parts management, Inventory policy, Asset life cycle, Total Cost of Ownership.
capacity achievable by the system should be considered for a
1. INTRODUCTION capacity achievable by the system should be considered for a
1. INTRODUCTION decision under
capacity achievablea systemic
by theperspective.
system should be considered for a
1. INTRODUCTION decision under a systemic perspective.
Total Cost of Ownership (TCO) is the sum of expenditures Maintainability
decision under aissystemic
a key dimension
perspective. for a physical asset, which
Total Cost of Ownership (TCO) is the sum of expenditures Maintainability is a key dimension for a physical asset, which
made Cost
by the owner of a physical asset along of its entire life leads to Key Performance
Maintainability Indicators (KPIs), such as which
MDT
Total
made by the owner of a physicalisasset
of Ownership (TCO) the sum along expenditures
its entire life leads to Key Performance Indicators a(KPIs),
is a key dimension for physical asset,
such as MDT
cycle. Those expenditures are required to acquire, install, put (Mean
leads Down Time). Through maintainability, a decision
made
cycle. by
Thosethe expenditures
owner of a physicalare requiredassetto along
acquire, its install,
entire life
put (MeantoDown Key Performance
Time). Through Indicators (KPIs), sucha as
maintainability, MDT
decision
into service, operate, maintain and, eventually, dispose the maker can
(Mean Down be aware
Time).of the probability that failed aequipment
cycle. Those expenditures
into service, operate, maintain are required to acquire,dispose
and, eventually, install, put
the maker can be aware of Through maintainability,
the probability decision
that failed equipment
physical asset. Those costs play an important role within the can be can
maker restored
be aware to itsofnormal operable that
the probability state within a given
into service,
physical asset.operate,
Those costs maintain
play and, eventually,
an important roledispose
within the can be restored to its normal operable statefailed within equipment
a given
decision
physical making process, especially regarding decisions on timeframe.
can One
be restored of the
to the main
its main
normal aspects
operable to guarantee
state withinor maintain
a given
decision asset.
making Those costsespecially
process, play an important
regardingrole within the
decisions on timeframe. One of aspects to guarantee or maintain
purchasing, maintenance planning, operations strategies, a certain level
timeframe. One of of maintainability
the main aspectsis spare parts availability.
decision
purchasing, making process, especially
maintenance planning, regarding
operationsdecisionsstrategies,on a certain level of maintainability is tospare
guarantee or maintain
parts availability.
spare parts / logistics
purchasing, maintenance
spare parts / logistics
support
support
design, asoperations
planning, well as replacements
design, as well as replacements strategies, aTherefore,
certain a main
level of concern when defining
maintainability is
Therefore, a main concern when defining maintainability spare maintainability
parts availability. is
is
and renovations.
spare parts / logistics support design, as well as replacements the configuration
Therefore, a main ofconcern
inventory policies
when defining(alsomaintainability
stocking policies is
and renovations. the configuration of inventory policies (also stocking policies
Publications on TCO evaluation of industrial assets can be as synonym
the used by
configuration literature) policies
of inventory for each sparestockingpart, in order to
and renovations.
Publications on TCO evaluation of industrial assets can be as synonym used by literature) for each(also policies
spare part, in order to
found in the scientific literature since 1970 (Kaufman, 1970; sustain
as the
synonym availability
used by literature)of the physical asset and, as a final
Publications on TCO evaluation
found in the scientific literature sinceof industrial
1970 (Kaufman,assets can 1970;be sustain the availability of the for each spare
physical asset part,
and, in asorder to
a final
Ntuen, 1985; Taylor, 1981). From those years on, proposals consequence,
sustain to guarantee
the availability of thethephysical
capacity of the and, production
found
Ntuen,in1985;
the scientific literature
Taylor, 1981). Fromsincethose1970 (Kaufman,
years 1970;
on, proposals consequence, to guarantee the capacityasset of the as a final
production
of TCO1985;models are present system where the asset is operating.
Ntuen,
of TCO models Taylor, 1981). at
are present From
at
a great
thoseextent.
a great years on,
extent.
Nevertheless,
proposals
Nevertheless, consequence,
system where the to asset
guarantee the capacity of the production
is operating.
despite itmodels
may seem an overcome problem. Nowadays TCO is Despitewhere
system the importance
the asset isof maintainability for physical assets,
of TCO are present at a great
despite it may seem an overcome problem. Nowadays TCO is extent. Nevertheless, Despite the importance ofoperating.
maintainability for physical assets,
gaining
despite momentum both in industry and scientific research main
Despite effects of spare
the importance parts inventory policies
of maintainability are still poorly
for physical assets,
gaining itmomentum
may seem an bothovercome problem.
in industry Nowadaysresearch
and scientific TCO is main effects of spare parts inventory policies are still poorly
(Thiede momentum
et al., 2012), and in several gapsand can still be identified covered
main in
effectseconomic evaluations
of spare evaluations
parts inventory along the asset
arelife cycle, as
gaining
(Thiede et al., 2012),both industry
and several gaps canscientific research
still be identified covered in economic alongpolicies
the asset still
life poorly
cycle, as
when analyzing the state of the art.
gapsIn fact,
stilli) most of the demonstrated
covered by
in economic the lack of
evaluationsmodels proposed
along that
the asset incorporate
(Thiede et al., 2012),
when analyzing the stateand several
of the art. Incan fact, i) bemostidentified
of the demonstrated by the lack of models proposed thatlife cycle, as
incorporate
currently existing life cycle cost models assume a piecemeal those aspects by
demonstrated into TCO lackevaluation. Our interest that is to reflect
when analyzing
currently existingthe lifestate
cycleofcost
the models
art. In assume
fact, i) most of the
a piecemeal those aspects intotheTCO of models proposed
evaluation. Our interest isincorporate
to reflect
approach and no systemic view
cost(Xu et al.,assume
2013) and, ii) there on
those this gap and, to this end, we decided to make a simulation
currently
approach and existing life cycle
no systemic view (Xumodels
et al., 2013) and, a piecemeal
ii) there on thisaspects
gap and, intoto TCO
this end,evaluation.
we decided Ourtointerest
make aissimulation
to reflect
is a lack
approach of adequate cost models describing the links study
on thiswith
gap theand,purpose
to this end,to unveil the relationship
we decided to make abetween
simulationthe
is a lackand of noadequate
systemiccost view models
(Xu et al., 2013) and,the
describing ii) there
links study with the purpose to unveil the relationship between the
between
is a lack system
of performance
adequate cost parameters
models and the
describing the costs
links spare parts
study with inventory
the purpose policies
to andthe
unveil TCO. relationship between the
between system performance parameters and the costs spare parts inventory policies and TCO.
involved system
and that take into parameters account the configuration The paper
spare parts is organized as follows. Section 2 provides a quick
between
involved and thatperformance
complexity of asset
take into account theand
systems (Chen et al., 2013).
the costs
configuration The paper isinventory
organized policies and TCO.
as follows. Section 2 provides a quick
involved and that take into account
complexity of asset systems (Chen et al., 2013). the configuration literature
The review
paperreview
is organizedfocusing on the
as follows. relationships
Section 2 providesbetween TCO
a quick
literature focusing on the relationships between TCO
More in detail,
complexity as it
of asset is stated
systems by et
(Chen Roda and Garetti (2014),
al., 2013). models and
literature reviewspare parts management
focusing on the decisions.
relationships betweenSectionTCO 3
More in detail, as it is stated by Roda and Garetti (2014), models and spare parts management decisions. Section 3
many inexisting
More detail, TCO
as it is models
stated by lack
Roda inandconsidering
Garetti (2014), the providesand
models a conceptualization
spare parts of the relationship
management decisions.of spare
Sectionparts3
many existing TCO models lack in considering the provides a conceptualization of the relationship of spare parts
performance
many existing characteristics
TCO of the lack
models industrial
in installations, the
considering i.e. inventorya conceptualization
provides policies with TCO of relationship
of the industrial assets.
of spareThen,parts
performance characteristics of the industrial installations, i.e. inventory policies with TCO of industrial assets. Then,
physical assets,
performance as a whole.
characteristics Indeed, installations,
of the industrial the operational i.e. section
inventory 4 and 5
policiesare dedicated
with TCO to the simulation
of simulation study:
assets.they
industrial study: are
Then,
physical assets, as a whole. Indeed, the operational section 4 and 5 are dedicated to the they are
performances achieved as a system (e.g. a production line, respectively
section presenting
4 andpresenting
5 are dedicated the simulation and
to the simulation cost models used
physical
performances assets, as aas whole.
achieved a systemIndeed,
(e.g. a the operational
production line, respectively the simulation and coststudy:
models theyused
are
composition ofachieved
performances machines) as are rarely evaluated
a system by means line,
(e.g. a production of a for the study,
respectively and the analysis
presenting of the and
the simulation experimental
cost models results.
used
composition of machines) are rarely evaluated by means of a for the study, and the analysis of the experimental results.
TCO model. In other words, besides availability, reliability, Section
for 6 provides
the 6study, the
and the concluding
theconcluding remarks
analysis ofremarks of this
the experimental work.
composition
TCO model. of In machines)
other words, are besides
rarely evaluated
availability, by means of a
reliability, Section provides of this work.results.
maintainability,
TCO model. In other otherwords,characteristics as the production
besides availability, reliability, Section 6 provides the concluding remarks of this work.
maintainability, other characteristics as the production
maintainability, other characteristics as the production
Copyright
2405-8963 2016
2016, IFAC 19 Hosting by Elsevier Ltd. All rights reserved.
IFAC (International Federation of Automatic Control)
Copyright 2016 IFAC 19
Peer review under responsibility of International Federation of Automatic Control.
Copyright 2016 IFAC 19
10.1016/j.ifacol.2016.11.004
2016 IFAC AMEST
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2. LITERATURE REVIEW ON TCO MODELS AND
SPARE PARTS MANAGEMENT DECISIONS
Roda and Garetti (2015) proposed a Cost Breakdown
Structure (CBS) for performing TCO analysis and trade-offs
in order to suit the objectives of the company under concern. components used by a production line. That work does not
Amongst the categories in the CBS there are the spare parts
costs. In that category, many are the aspects that have to be
considered. In fact many are the decisions on spare parts
management that a company can make along the lifecycle of
the asset system and that affect its TCO. Briefly speaking, a
series of spare parts management decisions can cause
economic effects into TCO, as for example, supplier
selection, initial provisioning, stocking policy (i.e. inventory
control and location), repair or replace policy, end of life
acquisition using/acquiring salvage spare parts.
If we also consider the environment where the physical asset
is operated, a series of challenges and opportunities are
influencing the spare parts management decisions and, thus,
their economic effects measured by the TCO. Amongst them,
it is worth considering the operational behaviour and
characteristics of the asset (i.e. failures dependencies,
deterioration, changes in the process severity, etc. ), the
management practices (i.e. standardization / commonalities
of spare parts, outsourcing of inventory control to suppliers,
decentralized stocks, co-operative stock pools, etc. .), and
the changes in the outer context (technology innovation, new
commercial offers from spare parts vendors, etc. ).
Last but not least, spare parts classification is also worth of a
remark, as a relevant step of the whole management process
for driving decisions on spare parts (Roda et al., 2014). Many
advantages can be achieved as a consequence of a proper
classification, e.g. a company may align stocking policies
with criticalities of the spare parts (Macchi et al., 2011). In
fact, it has to be considered that in order to define the stock
sizes for the spare items, a company needs to select the
inventory model amongst different options and proper
classification can help for this scope (Macchi et al. 2011),
(Miranda et al. 2014). In this regard, it is worth remarking
that literature is providing a wide set of models for stock
management control; the following list collects the majorly
used or cited models (Cavalieri et al., 2008).
The continuous review, with fixed reorder point (r) and
fixed order quantity (Q), referred to as (Q, r).
The continuous review, with fixed re-order point (s) and
order-up-to level (S), referred to as (s,S).
The periodic review, with fixed ordering interval (R) and
order-up-to level (S), referred to as (R,S).
The continuous review and order-up-to level (S) in a
one-for-one replenishment mode, referred to as (S-1, S).
The continuous review, with re-order point (s) one or
zero policy that resolves the main spare parts problem:
stock or no stock.
Notwithstanding the importance of spare parts management
decisions in practice, in an extensive literature review, few
works have been found that address the integration of such
20
decisions within TCO models. In Carpentieri et al. (2007) a
simplified life cycle cost (LCC) model which integrates spare
parts issues is proposed. In that work, the authors suggested
the application of a simulation study to estimate the average
monthly consumption rate of the mechanical and electronic
consider inventory policies or other aspects present in a spare
parts management system. Carpentieri and Papariello (2006)
incorporate operational aspects and spare parts management
issues into a LCC model, taking into account the maintenance
costs for two different maintenance policies (preventive and
corrective) to calculate the costs of the spare parts that are
annually required. Thus, a number of indicators is considered
in their LCC model such as the total annual spare parts cost
and the total maintenance hours required by a station, with
logistics considerations about assembly and disassembly
operations. Jun and Kim (2007) incorporated with more detail
the spare parts aspect into a LCC model for a railway vehicle.
They highlighted that an optimized strategy in spare parts
management can decrease the operational costs. In their work
they classified total LCC into two categories: recurring and
non-recurring costs. Recurring cost (cost annually calculated)
includes labour, consumable, power, on-going training,
documenting and upgrading cost. On the other hand, the non-
recurring cost includes initial spares, amongst others: they are
calculated once when the asset is purchased, and they are
usually added to the investment costs.
3. CONCEPTUAL MODEL ON THE RELATIONSHIP OF
SPARE PARTS INVENTORY POLICIES WITH TCO
A conceptual model is now proposed to set the relationship of
spare parts inventory policies with TCO (figure 1).
Changes in the outer context
(technology innovation, )
Asset Life Cycle
Spare parts Decreasing
Influent for the BOL
managament operational
performances
Influent for
the spare parts
Changing
failure rates
Constant
decisions requirements
and costs of the
(consumption rate) Increasing
physical asset MOL
Changing
.
maintenance
Preventive maintenance
Corrective maintenance
Inventory policy EOL
.
policies
TCO of the industrial asset
Figure 1. Conceptual model
Three inner dimensions (internal to the management system)
are defined: i) spare parts management decisions, ii) changing
failure rates and iii) changing maintenance policies along the
life cycle. Besides, changes in the outer context are influent
on such inner dimensions.
For what concern the first dimension, a lot of decisions can
be identified in regard to the spare parts of physical assets.
Spare parts inventory policy is one decision, amongst others.
In particular, initial provisioning of spare parts is required at
the Beginning of Life (BOL) of the physical assets. Besides,
other decisions are needed, dealing with the inventory policy,
repair or replace policy, locations (comparing centralized or
decentralized stocking).These may be changing along the
asset life cycle as the environmental conditions change:
2016 IFAC AMEST
October
19-21, 2016. Biarritz, France Orlando Durn et al. / IFAC-PapersOnLine 49-28 (2016) 019024 21

decisions taken during the BOL may be modified, according TCO. That analysis may be re-taken (i.e. more than once)
to the new conditions experienced over the Middle of Life during the asset operation, i.e. the MOL phase, as the failure
(MOL) of the asset. Eventually, there are decisions concerned rates and maintenance policies could change. This may occur
not only with the End of Life (EOL) of the asset, but also up to the EOL of the physical asset itself, or up to the EOL of
with the EOL of the spare parts: obsolescence is a well- the spare part when this happens before the EOL of the asset
known problem occurring from time to time, requiring to due to changes in the outer context.
identify the parts that have become obsolete, and to decide
the new parts as substitutes. This is primarily due to the
environmental changes in the outer context, e.g. technology,
design changes, new commercial offers of spare parts vendor,
whether or not the part is obsolete, which parts may be
acquired, and the reviews of stocking policies or suppliers are
then required at the EOL of the spare parts currently in use.
All in all, this motivates that the concept of life cycle is a
relevant dimension to organize decision making for the spare
parts required by a physical asset.
Spare parts inventory policy is, as said, a decision, amongst
others related to the asset lifecycle management. The
inventory policy in general, a spare parts management
decision should be assessed after taking into account the Figure 2. (a) Cash flow using PM (at constant date) and
environmental conditions due to the assets: these lead to the Continuous Review inventory model. (b) Cash flow using
second and third dimension of the conceptual model. Indeed, PM (at constant age) and Continuous Review inventory
the consumption rate of the spare part is influenced firstly by model.
the failure rate, as inherent characteristic, and secondly by the
maintenance policies of the asset. On one hand, failure rate is 4. THE MODELS ADOPTED IN THE CASE STUDY
traditionally seen through the theory of the bathtub curve.
The case study presented in this paper refers to a section of a
This has found in the Weibull distribution a popular model
comminution plant in the copper industry. The uncertainty
thanks to its flexibility in representing the different phases,
along the asset life cycle is modelled through simulation. The
featuring a decreasing, constant or increasing failure rate.
stochastic functioning of the physical assets is represented by
More recently, studies are concentrating on the changes of
simulation to best fit the failure rates, thus the spare parts
the failure rates along the asset life cycle, leading to the
consumptions. More in detail, the Monte-Carlo next-event
proposal of new models in order to consider all the different
simulation (Rausand & Hyland, 2004) is adopted by using
phases along the time of the asset life cycle (e.g. Mahmoud
statistical distribution functions on component level as input
and Mohammad (2010), Tian et al. (2014)). This enables to
parameters. The basic input variables of the simulation model
remark the need to consider that the reliability law / failure
are: i) the distribution of times between failures (TBF): which
rate is not established once in the life; indeed, it is changing.
indicates the time that elapses between the occurrence of two
Henceforth, from time to time, it leads to different conditions
consecutive failures of an item; ii) the distribution of time to
meaning, from the spare parts point of view, different usage
repair (TTR): which represents the time required to restore an
patterns, which ultimately lead to needs to re-take decisions.
item in service, after the occurrence of a fault. The
On the other hand, once the reliability law / failure rate is
parameters of the probability density functions were obtained
given, different dynamics happen when preventive or
after fitting real data. The two variables were associated with
corrective replacements (after the failure) are decided. As an
all existing equipment in the system under analysis, since
example, preventive replacements can be originated by two
they are the basic units of information input. The simulation
different Preventive Maintenance (PM) policies, i.e. at
approach allows generating random failure events
constant ages or dates. Clearly, the choice of one of the
occurrence, in accordance with the Monte Carlo method. The
aforementioned time based PM policies, combined with the
failure and end repair time are the two events traced out at
randomness of the failure rate during the asset life, dictate a
each equipment of the system during every simulation run.
different order placement for the spare items, anticipating or
According to the conceptual model presented in previous
delaying the correspondent cash flows. Figure 2a and 2b are
section 3, different timeframes may consider the changing
exemplifying the different dynamics that can happen due to
reliability laws / failure rates along the asset life cycle.
such policies. It is worth remarking that such dynamics are
Nonetheless, due to the purpose of the study, the experiments
not fixed once in the life: as failure rates are changing along
shown in the remainder only consider a fixed probability
the asset life cycle, PM policies may change as well, thus
distribution to generate data. Exponential distribution is used
leading to different dynamics.
considering a failure rate = 0,004 to generate the TBF (Time
All in all, changes in failure rates and in maintenance policies
Between Failures) and a Weibull distribution is used to
are relevant dimensions that are influent in the relationship of
generate TTR (Time To Repair).
the spare parts inventory policy decision with the TCO of the
industrial asset. More precisely, at the BOL of an asset, there Besides, the Reliability Block Diagram (RBD) technique is
is the need of evaluating different inventory policies and the used to represent the structure of the production system and
effects that their operating parameters can cause into the the interdependencies among the various elements that make
up the system. This enables to introduce the complexity of

21
2016 IFAC AMEST
October
22 19-21, 2016. Biarritz, France
the system, as a set of physical assets combined according to
their reliability logics (series, parallel and multistate system
logics are considered for the case study). The logics allow
analysing the performance of the system due to the physical
assets for which spare parts inventory policies are planned.
To provide a focused analysis in this study, generation of data
is limited to a specific spare part required by a critical asset in
the plant.
The model is implemented in R-MES (2015), a software for
Reliability and Maintenance Engineering. R-MES enables a
hierarchical modelling, leading to the possibility to represent
different modelling levels, nested one within each other and
usable for developing a simulation study at the needed extent
of detail. The RBD of the plant is shown in figure 4, where
the screen shot of the first level of the hierarchical model is
depicted. The assets of the plant are crushers, feeders,
transport belts, pumps, vibrating pan feeders, hydro-cyclones,
ball mills.
PRIMARY CRUSHER
SERIES 3 equipments
SECONDARY CRUSHER
SERIES 7 s ub-systems
MILLING
MULTI STATE SYSTEM 3 s ub-systems
Fig.3. Reliability Block Diagram used in the simulation case
To understand the effects that different inventory policies, or
decisions on certain inventory parameters, causes to TCO, we
simulate three operating years considering the MOL of the
asset. Such a timeframe is enough as the failure rate (so the
consumption rate of the spare part) fits well the useful life of
the asset under study.
Through that, we obtain the behaviour of the asset under
study, considering the occurrence of both planned and
unplanned maintenance (i.e. preventive and corrective
maintenance). Assuming that each maintenance corresponds
to a spare part replacement, it can be stated that the
experiments consider both planned and unplanned
replacements. The correspondent spare part consumptions,
generated by the plant model, are used as input of a second
model, that is the inventory model: the consumption rates are
applied to a simulated stock operated according to a
continuous review policy. Indeed, the experiments proposed
in this paper consider the situation of a company that stores
and manages a spare part according to the continuous review:
the inventory level is continuously monitored and, as soon as
it drops to the reorder point s, a new order, for Q units of the
spare item, is placed with its supplier. Therefore, a series of
experiments is performed using different stock parameters:
Reorder Quantity (Q); Reorder Point (r); Initial Stock Level
(S0). Besides, whenever a stock-out happens,
unavailability/down times of the physical asset are
correspondingly calculated in the RBD model of the plant.
Orlando Durn et al. / IFAC-PapersOnLine 49-28 (2016) 019024
The economic assessment is carried out by computing the
following cost components, used to form the cost model: the
Holding Costs, the Acquisition Costs, the Stock-out Costs. In
this study it is assumed that the replaced part has no residual
value.
Holding Costs (HCi) of a given spare part i is calculated by
multiplying the average stock level in a given period (Qavi)
and a given value corresponding to the unit holding cost
(Chi). The average level of a certain spare part in a given
period strongly depends on the inventory policy and on the
stock dynamics until the period under analysis.
HCi = Qavi * Chi
Acquisition Costs (ACi) is obtained by the multiplication of
the cost of placing one order of a given spare part (Ai) and the
number of orders placed during a given period (Nordi).
ACi=Ai * Nordi
The Stock-out Costs (SCi) are calculated by the multiplication
of a fixed value that represents the unitary stock-out cost (Sci)
of the spare item and the average stock-out quantity of the
corresponding period (Souti):
SCi= Sci * Souti
The stock-out quantity is measured as the loss of production
quantity, proportional to the unavailability/down times of the
physical asset. Owing to the series logics of the assets where
failures are generated, this corresponds to the loss at the plant
level.
The Total Cost (TCi) is eventually calculated in its holistic
version by the summation of the three aforementioned cost
components:
TCihidden+logistic supports = HCi + ACi + SCi
Another cost function is adopted, limited to cost components
related to the logistics support.
TCilogistic supports = HCi + ACi
The Total Costs of each one of the three years considered in
the experiments are computed. Then, the three values are
used to calculate the financial indicator (Net Present Value
(NPV)), by means of the actualization of the cash flows.
5. THE EXPERIMENTAL RESULTS
Table I and II show the experimental results, reporting the
NPV of the inventory policy (note that the discount rate for
the NPV calculation is equal to 10 % per year, inflation was
neglected) and the Availability of the asset.
The results are obtained based on a set of scenarios designed
to compare the different inventory policy parameters, i.e. s
and Q. Besides, the Initial Stock is the initial provisioning of
spare parts assumed at the beginning of the operating time
under concern for the policy decision.
Overall, the experimentation allows comparing the NPV, as a
measure of the effect caused into the TCO of the asset, and
the Availability as a well-known technical measure of the
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2016 IFAC AMEST
October 19-21, 2016. Biarritz, France Orlando Durn et al. / IFAC-PapersOnLine 49-28 (2016) 019024 23
asset. More specifically, the scenarios enable testing a range
of approaches, from conservative strategies (in case of high
value of fixed reorder point s and fixed order quantity Q) to
risky strategies (in case of low value of the same parameters s
and Q), inclusive of the intermediate situations (combining
high and low value for s and Q). Such kind of tests enables
some observations:
minimum costs and maximum availabilities are achieved
with different parameters of the inventory policy; indeed,
the lowest costs are reached with the lowest values of
reorder point, while the maximum availabilities are
reached with the highest values of reorder points;
costs increase when the order quantities decrease;
therefore, the highest order quantities allow the lowest
costs with a given reorder point;
the highest order quantities also allow the highest
availability, especially with the highest values of reorder
points.
This outcome cannot be generalized as it depends on the
unitary costs used in the case study (Chi=$2; Ai = $20; Sci=
$20). Nonetheless, it allows reflecting on the drivers of the
strategies that may be relevant for a decision maker.
Generally speaking, it is obvious to assert that the strategies
are driven by the objective of the decision. The case study
shows the driver, i.e. the existence of a tradeoff between costs
and technical measures (NPV versus Availability), which
may occur subsequent to the specific unitary costs. More
specifically, it is evident that a decision featuring a partial
risk (i.e. an intermediate strategy between the fully
conservative and the risky strategy) may be acceptable: this
could happen, as in the case study, when the unitary stock-out
costs assumes values comparable to the other costs associated
with the logistics support. Indeed, the experiments herein
presented enable to state that, as strategy, it is better waiting
to reorder at the lowest stock level as possible leading to a
partial risk of stock-out, but saving the number of times that
the order is placed. On the other hand, big quantities should
be ordered enabling, at the cost of inventory holding, to limit
the risk not to achieve the targets, i.e. low NPV and high
Availability.
Overall, the experimental results put in evidence that the
decision is influenced by the Cost Breakdown Structure. The
cost function provides a holistic model of the incurred costs.
This means that the decision should be based not only on the
costs associated with the logistics support, but also on the
hidden costs correspondent to the unavailability of the spare
parts in the inventories (i.e. stock-out costs). This leads to a
decision that considers the subsequent effects on operational
performances, such as the plant downtimes while it is also
aligned with the aim of TCO evaluation and improvement.
Depending on the unitary costs characterizing the Cost
Breakdown Structure, the decision-making strategies may
change. If, for example, we were experimenting with a much
higher stock-out unit cost, we could expect a change
orienteering to a more conservative strategy i.e. high
23
reorder level associated with high order quantities in order
to keep high Availability.
6. CONCLUSIONS
TCO is a useful concept for asset managers to support their
decision making process. During the entire life cycle of any
physical asset, managers face crucial questions in regard to
purchasing, maintenance, replacements, spare parts / logistics
support design, etc.
The present work raised attention on the spare parts
management decisions, for which there is a series of issues to
be solved with respect to the BOL, MOL and EOL phases of
the asset life cycle. All those issues may cause important
effects into economics, thus, their incorporation has to be
considered highly relevant for the implementation of TCO
evaluation.
In the literature review it was understood that few works have
effectively addressed the definition and implementation of
TCO models for supporting decisions on assets integrated
with spare parts concerns. Then, we defined and implemented
a simulation based methodology for the analysis of several
spare parts management decisions. The methodology was
based on a conceptualization leading to foster future works as
follow-up of this research, in regard to the study of different
spare parts management decisions along the asset life cycle
and their relationship to TCO.
Based on such a wide concept, the simulation study aimed at
supporting the specific analysis of an inventory policy and its
operational parameters. The modelling approach was divided
into three stages. The first stage implemented a Monte Carlo
simulation to generate planned and unplanned maintenance of
each physical asset, and a RBD model of the production
system, composition of the physical assets, to measure the
effects at system level. The second stage, relating to the stock
simulation, used the spare parts consumptions resulting from
the planned and unplanned maintenance generated in the first
stage. The third and last stage regarded the calculations of
cost components, effects of the dynamics outcome of the first
and second stage: the costs were structured as cash flows and
the related financial indicators, as Net Present Value (NPV),
were obtained. It is worth pointing out that the economic
effects of maintainability were also including the stock-out
costs, in order to consider longer downtimes and their effects
on the availability of the physical assets in the system.
Future works aim at testing other inventory policies, while
also measuring the effect of lead time variability and joint
consumptions of spare parts. In addition, using the simulation
based methodology, one can analyse other strategies such as
an end of life acquisition, or adding disposal related costs if a
given quantity remaining at the final period of the useful life.
Such remaining stock can be considered as an additional
revenue opportunity if that stock can be bought by any
interested user elsewhere, or can be configured as additional
disposal costs, if the company must pay for anyone to retire
it.
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24 Orlando Durn et al. / IFAC-PapersOnLine 49-28 (2016) 019024

Table I. Availabilities obtained in each of the test cases.

Reorder Reorder Level = 4 Reorder Level = 3 Reorder Level = 2 Reorder Level = 1
Quanti ty I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2
6 99,3% 99,3% 99,3% 99,3% 99,3% 99,3% 99,3% 98,7% 99,3% 98,0% 98,0% 96,7% 97,4% 94,8% 94,2% 94,8%
4 99,3% 99,3% 99,3% 99,3% 99,3% 99,3% 99,3% 98,7% 97,4% 98,7% 98,7% 96,1% 89,7% 91,0% 96,1% 92,9%
2 99,3% 99,3% 99,3% 99,3% 99,3% 98,7% 99,3% 98,7% 95,5% 95,5% 95,5% 95,5% 71,2% 66,7% 71,2% 66,7%
1 93,6% 93,6% 93,6% 93,6% 86,5% 86,5% 86,5% 86,5% 74,4% 74,4% 74,4% 74,4%

Table II NPVs obtained in each of the test cases.

Reorder Reorder Level = 4 Reorder Level = 3 Reorder Level = 2 Reorder Level = 1
Quanti ty I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2 I.Stock:5 I.Stock:4 I.Stock:3 I.Stock:2
6 $ 1.905,08 $ 1.833,07 $ 1.848,34 $ 1.920,80 $ 1.656,42 $ 1.646,45 $ 1.574,44 $ 1.606,24 $ 1.309,77 $ 1.432,50 $ 1.427,81 $ 1.381,92 $ 1.199,77 $ 1.177,08 $ 1.314,70 $ 1.293,48
4 $ 1.796,23 $ 1.751,69 $ 1.741,29 $ 1.848,61 $ 1.593,61 $ 1.537,60 $ 1.493,06 $ 1.493,18 $ 1.287,44 $ 1.353,16 $ 1.295,49 $ 1.317,07 $ 1.311,33 $ 1.264,01 $ 1.180,48 $ 1.205,62
2 $ 1.985,32 $ 2.033,61 $ 1.992,59 $ 2.037,25 $ 1.767,71 $ 1.743,22 $ 1.774,98 $ 1.750,49 $ 1.581,44 $ 1.609,90 $ 1.592,35 $ 1.617,18 $ 2.461,95 $ 2.691,39 $ 2.472,86 $ 2.702,30
1 $ 2.831,01 $ 2.841,92 $ 2.851,01 $ 2.858,29 $ 2.906,76 $ 2.919,49 $ 2.930,40 $ 2.939,49 $ 3.311,60 $ 3.326,15 $ 3.338,87 $ 3.349,78

AKNOWLEDGMENT in the avionic sector, in Altay N.; Litteral L.A. (Eds.):

Service Parts Management Demand Forecasting and
The research work was performed within the context of Inventory Control, pp. 171-202.
SustainOwner (Sustainable Design and Management of Mahmoud M.A.W., Mohammad Farouq A. Alam (2010) The
Industrial Assets through Total Value and Cost of generalized linear exponential distribution, Statistics &
Ownership"), a project sponsored by the EU Framework Probability Letters, Volume 80, Issues 1112, 115 June
Programme Horizon 2020, MSCA-RISE-2014: Marie 2010, Pages 1005-1014.
Skodowska-Curie Research and Innovation Staff Exchange Miranda,S. Roda,I., Macchi,M., Montera,G. (2014) A
(RISE) (grant agreement number 645733 Sustain-Owner criticality-driven methodology for the selection of spare
H2020-MSCA-RISE-2014). parts stock management policies: the case of a beverage
industry company, in Proceedings of the XIX Summer
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