By Yue Zhang📧, William McCall, Jing-Sheng Song
In INFORMS Transactions on Education, 2024, ahead of print, published online January 11. https://doi.org/10.1287/ited.2022.0072ca
The case presents a sourcing problem and a manufacturing problem faced by an original equipment manufacturer, seeking recommendations for sourcing a diverse range of parts for high-voltage equipment, as well as making decisions on the manufacturing strategy for a component used in a water monitoring system. The case provides an opportunity to explore the qualitative and quantitative aspects of three-dimensional (3D) printing versus traditional manufacturing, specifically in terms of operational cost. Furthermore, this case facilitates discussions on the potential impact of 3D printing on supply chains. It is suitable for use in graduate and undergraduate courses, as it introduces key concepts such as manufacturing and inventory policies, queueing theory, and life cycle analysis. Ultimately, the case is designed to promote a deeper understanding of the challenges and opportunities that manufacturers face in today’s rapidly evolving technological landscape.
Keywords: Centralized/decentralized manufacturing; Make-to-stock (MTS); Make-to-order (MTO); Inventory costs; Economic order quantity (EOQ); (r, Q) policy; Life cycle analysis; Multiclass queue
Customers of many original equipment manufacturers (OEMs) in business-to-business markets today demand product servicizing in which instead of buying the product from the OEM they buy the use of a product during a lease. During the lease, (i) the customer uses the product and returns it to the OEM after the use reaches a specific level, (ii) the OEM remanufactures the product in a costly process and sends it back to the customer, and this usecycle is repeated multiple times. The lease terms typically involve a use-based payment. While a greater product use by a customer brings a larger revenue to the OEM, it also increases the remanufacturing cost incurred by the OEM. We investigate this trade-off using an analytical model for a contract that is used extensively in industry. For the case of homogeneous customers with a common use rate of the product, we optimize lease payment terms and identify market and product-remanufacturing characteristics for which the OEM should servicize the product instead of selling it. We show that an OEM should not servicize a product when the customers’ use rate exceeds a threshold. This is because, beyond this threshold, the remanufacturing cost increases disproportionably, exceeding the higher usage-based revenue. Subsequently, we consider a market with two segments with different use rates. We consider two servicizing modes: (i) servicize both market segments or (ii) selectively servicize only one segment and sell the product to the other segment, and the default mode of selling in both segments. We develop optimal lease payment terms for these use-based servicizing modes, identify thresholds of product and market characteristics for the optimality of these modes. Finally, we extend the results to a market with more than two segments and compare the environmental impacts of the servicizing or sell decision. Numerical results informed by empirical data show that the OEM’s loss of profit from choosing a suboptimal servicizing/sell decision can be significant.
Industry 4.0 integrates digital and physical technologies to transform work management, where two core enablers are the Internet of Things (IoT) and 3D printing (3DP). IoT monitors complex systems in real-time, while 3DP enables agile manufacturing that can respond to real-time information. However, the details of how these two can be integrated are not yet clear. To gain insights, we consider a scenario where a 3D printer supplies a critical part to multiple machines that are embedded with sensors and connected through IoT. While the public perception indicates that this integration would enable on-demand printing, our research suggests this is not necessarily the case. Instead, the true benefit is the ability to print predictively. In particular, it is typically more effective for the 3D printer to predictively print-to-stock, based on a threshold that depends on the system’s status. We also identify a printing mode called predictive print-on-demand that allows for minimal inventory, and find the speed of 3DP to be the primary factor that influences its optimality. Furthermore, we assess the value of IoT in cost reductions by separately analyzing the impact of advance information from embedded sensors and the real-time information fusion through IoT. We find that IoT provides significant value in general. However, the conventional wisdom that IoT’s value scales up for larger systems is suitable only when the expansion is paired with appropriate 3DP capacity. Our framework can help inform investment decisions regarding IoT/embedded sensors and support the development of scheduling tools for predictive 3D printing.
Maintenance, repair, and operations (MRO) items are critical components of enterprise asset maintenance. While MRO items do not become part of or are central to the finished product, they are necessary to keep plant and facility assets operating safely at optimal levels of performance. Companies spend between 5 and 10 percent of their cost of goods sold on MRO purchases. However, we are not interested in these direct and visible costs of MRO, but rather in something less apparent and potentially more sinister. We are interested in the hidden costs when MRO parts are not available, and assets must be retired—what we call an MRO failure. When an asset can no longer be repaired, then it must be replaced, and these costs are largely hidden since they may not be directly reported. To further an understanding on these issues, an on-line survey was conducted during October–December, 2022. Our objective is to get insights into how firms manage their capital assets lifecycles. Specifically, the survey seeks to provide clarity about the causes of three asset retirement circumstances, namely prior to full depreciation, after depreciation but before the end of its useful life, and after the asset’s useful life. This report presents the findings from the survey study.