Decision-making for strategic spare parts pricing levels: An evaluation of consumer products sustainability

The aftermarket business is a highly profitable activity for companies, and they can earn considerable profits from selling spare parts. Spare parts demands are more uncertain and intermittent in comparison with finished goods and associated work in progress parts. In the aftermarket, the demand uncertainty of the spare parts for the OEMs is complicated by the fact that the other competitors, known as market players or will-fitters, supply substitutable parts usually with lower cost of production and deliver them to the market at cheaper prices. This uncertainty makes spare parts management challenging, and this study develops strategic approaches for spare parts price setting and inventory level control to further exploit the benefits of the spare parts business. This dissertation is divided into four main parts.;In the first part, a brief review of inventory system policies is provided. The review starts with an introduction to the inventory systems terminology and follows with a categorization of the inventory systems with the aim of developing spare parts inventory models. Moreover, a discussion about the computations related to the (Q,r) policy is provided. An algorithm is proposed to find the optimal re-order point/lot-size and a Monte Carlo simulation is designed to evaluate the mathematical optimization solutions including the new algorithm and the other classical methods. In the second part, a literature review related to spare parts management is presented. The literature review is organized in such a way that in the beginning the inventory control policies are introduced. Then the perspective of uniqueness of spare parts on the inventory management is illustrated. Next, spare parts clustering and demand are studied and forecasting methods are reviewed. The use of Game Theory for inventory systems planning is studied. Also spare parts pricing as a strategic method to increase the profit of the suppliers is evaluated. In the third part, to investigate the profitability of spare parts business, the notion of renewal cost versus the replacement cost is proposed. The replacement cost of a product is defined as the current market price of the product and the renewal cost of a product is the acquisition cost of spares to completely renew the product excluding labor costs. These costs are calculated for some products with specific characteristics, and the ratio between the renewal cost and the replacement cost as a scale to evaluate the sustainability of the spare parts pricing is determined which declares that the spare parts pricing is unfair. In the last part, Game Theory as a tool to find ideal decision-making in spare parts management taking into account the interactions among spare parts manufacturers. According to definite assumptions, spare parts inventory games in the form of normal, cooperative and non-cooperative, non-zero-sum, evolutionary, and competitive fringes are studied. The proposed games study the OEMs' decision-making on spare parts pricing strategies, inventory levels, batch productions and re-manufacturing efforts.;The proposed strategic spare parts pricing methods as an alternative for regular pricing can factor in customers' willingness to purchase spare parts, demand uncertainty, market uncertainty, competitiveness of the parts in the market, stability of the cooperation or competition in price setting, marginal costs of designing an agreement for cooperation, and the marginal cost of production and inventory. Furthermore it is possible to add the notion of renewal cost and the replacement cost ratio to the price sustainability description and to include it in the suggested strategic pricing formulations as a factor that affects the demand and supply curves.