OPTIMIZATION OF MAINTENANCE AND SPARE PROVISIONING POLICY USING SIMULATION

Ruhul Sarker1 and Amanul Haque2

1 2

School of Computer Science, University of New South Wales, ADFA, Canberra, Australia Mechanical and Industrial Engineering, University of Illinois at Urbana-Champaign, USA

In practice, maintenance and spare parts inventory policies are treated separately or sequentially. To ensure availability of spare parts for a production system use, when necessary, there is always a tendency to overstock them. Excess inventory involves substantial working capital. The stock level of spare parts is dependent on the maintenance policy. Therefore, maintenance programs should be designed to reduce both maintenance and inventory related costs. In this paper, a manufacturing system is considered with stochastic item failure, replacement and order lead times of statistically identical items. The development of mathematical model for such a system is extremely difficult. A simulation model is therefore developed for the system operating with block replacement and continuous review inventory policy. The response of the system was studied for a number of case problems. The study clearly shows that the jointly optimized policy produces better results than that of the combination of separately or sequentially optimized policies. Key words: maintenance, spare parts, inventory, optimum, simulation

1. INTRODUCTION

Maintenance is a dynamic service activity which aims at smooth, cost effective operation of an enterprise. Block replacement is a preventive maintenance policy where a large number of identical, low cost items are replaced group-wise after certain time intervals. Preventive
maintenance of operating components is based on the assumption that it costs more to undertake a repair or replacement at the time of failure than doing the same at some predetermined time. Total cost for this maintenance policy is the aggregate of the group replacements incurred after every replacement interval, and the cost for replacing those units that breakdown in spite of the preventive maintenance. The total cost function is a convex one [1] and a cost optimal replacement strategy can be obtained. Apart from cost, block replacement is advantageous since the replacement operations can be carried out at a convenient time when the system is not operating, thus reducing the costly system downtime.

Block replacement policy is most suitable for class B inventory items such as screws, springs, coils, disks, valves, bearings, bushings etc. items that require less frequent attention. These types of items are recommended to be inventoried by the minimum-maximum (S, s) version of the continuous review inventory system [1]. In this policy, the inventory level is initially set to the maximum at S. The stochastic failure of operating components deplete the spare items inventory and an order of (S-s)

items is placed whenever the inventory level reaches or falls below the reorder level s. The reorder level and the order quantity may be fixed or variable depending upon the status of the inventory level with respect to the reorder level, and order lead time is variable.

Total maintenance cost generally consists of (a) the costs associated with maintenance operations, (b) the costs of acquiring and holding maintenance equipment and spare parts, and (c) the cost of production downtime when unexpected breakdowns occur [2]. The cost of downtime can be interpreted as a shortage cost, or the penalty of not having the spare parts. In some instances, a shortage may have no serious consequences and in others it may be catastrophic. For example, the unavailability of a simple less expensive spare parts may keep the whole production line inoperable. Shortages of spare parts can result in lost production (idle manpower and inoperable machine or lost capacity), a delay in completion date (may have cost penalty for late completion of any scheduled products), present profit loss (may have loss of sales in the current market since no production) and future profit loss (goodwill erosion). The lost capacity is lost forever, and it may be too costly when the capacity is considered as scarce resource. That means, the shortage of spare parts may create a shortage of end products in the market. Perhaps the major complaint of maintenance supervision is the unavailability of spare parts and materials at the time they are needed. To ensure availability of spare items for block or breakdown replacement, there is always a tendency to overstock them at a substantial inventory cost. This overstock is frequently interpreted as safety stock. For efficient running, there must be a trade off between overstock and shortages of spare parts which is purely an inventory planning problem within the maintenance scheduling problem. This problem can be solved by joint, rather than separate or sequential optimization of maintenance and inventory policies. Such a policy is anticipated to be more cost effective since a trade-off between these two types of costs can be deduced logically. Researches on relevant fields have yielded several maintenance and inventory policies, but relatively little effort has been exerted to their joint optimization, which forms the basis of the present study. The complexity of mathematical modelling for such a system, encourages to choose a simulation approach in this paper.

Following this introduction, the literature survey is presented in section 2. The model development, experimental design, and results are provided in sections 3, 4 and 5 respectively. Finally conclusions are drawn in section 6.

2. LITERATURE SURVEY Kabir and Olayan [3] provide a comprehensive survey of age based replacement policies considering inventory problem. The first replacement policy was mathematically formulated by Barlow and

Proschan [3, 6 & 7] which assumed unlimited number of available spare units. For real time situations this is not a judicious assumption. Osaki et al.[4] developed a generalized model to determine ordering policy for a single operating item considering perfect and instantaneous switchover of spares, constant lead time for spare delivery, and the provision of expedited ordering.

The model proposed above considered constant lead time for spare delivery which again, is not a reasonable assumption. This shortcoming was eliminated by Park and Park [5] by introducing lead time variability to their model. The models described above were aimed at the determination of an optimal ordering policy by considering inventory costs (evidently for class A inventory items) only. However, the switchover from a failed item to spare item cannot be instantaneous and the maintenance related costs are also reasonably high to be ignored. Acharya et al. [6] developed a model that considered block replacement of operating items with periodic review of inventory items. They assumed that the ordering for replenishment of spare items is done at the block replacement instants only. This assumption facilitated the development of the model since the review period and block replacement interval coincided. Unfortunately simplification of this type could not be done for continuous review inventory policy since the cycle here is in terms of inventory level, and not in time units. However the model showed the superiority of jointly optimized maintenance and inventory policy over the separately optimized ones.

Kabir and Olayan [7] indicated the extreme complexity in developing a mathematical model that incorporate both the block replacement maintenance and continuous review inventory costs for multiple operating units situation. They developed a (S, s, T) simulation model where S, s parameters are for continuous review inventory and T is the block replacement interval per unit time, where the cost components include both replacement and inventory costs. The results obtained by Kabir and Olayan are very impressive in terms of cost effectiveness, when compared to the combination of the Barlow and Proschan age replacement policy and the optimal (S, s) policy. However, the model did not consider repair/replacement times and also the total system consisted of single or few items. In real time situations it would take some time for the block replacement or to replace the failed units which may cause system downtime, accumulation of work in process inventory for flow lines. And also, block replacement policy is not recommended for single or few operating units. The present study is aimed at the elimination of the shortcomings observed in the previous literature by using simulation as a tool. It allows stochastic failures of large number of statistically identical low cost operating components which are maintained by block replacement policy. The spare items inventory is controlled by continuous review system with the provision of expedited ordering, backlogs, and stochastic order lead times. Although the optimality criterion is the total cost, system

down time due to component failure and work in process inventory are computed to study potential alternative criteria.

3. MODEL DEVELOPMENT In the present study, a manufacturing system with its maintenance and inventory related functions is simulated. The system, as shown in figure 1, comprises of three production lines for three products, each of them having several work cells. Although the flow lines are shown as straight lines, the model can be adapted to any configuration of the system. The machines in these work cells may be identical or non-identical but all of them contains one common type of operating unit (screws or springs etc.). The number of operating units in each of the work cells (A to M) is shown on the blocks representing the work cells in parenthesis. For example, there are 20 statistically identical operating units in the work cell A and so on. The flow of work object in these production lines is given in terms of cycle time. For example, one cycle time for production line for job 1 is 5 time units, which means 5 time units are required for job 1 to finish on this line.

A(20)

B(8)

C(16)

D(16)

Job 1

Production Line for Job 1, (1 job/5 time units)

E(16)

F(16)

G(16)

H(16)

I(16)

Job 2

Production Line for Job 2, (1 job/4 time units)

J(16)

K(16)

L(12)

M(16)

Job 3

Production Line for Job 3, (1 job/4 time units) Figure 1. Manufacturing system configuration.

Maintenance and inventory functions for the above system configuration was then simulated with the following assumptions:

The operating units of are statistically identical and their failure is revealed instantaneously. Spare units inventory do not deteriorate and switchover of the units is perfect. Time required for replacement is stochastic. The failure rate for each item increases with time (i.e. does not follow exponential distribution since block replacement is ineffective for such failure pattern).

Unit cost of the items is constant irrespective of time or order quantity and thus its effects can be ignored for optimization. Emergency order is placed if the inventory level falls abruptly to or below zero. Inventory shortage cost includes the direct loss of production and other indirect costs as well. Maintenance policy is block replacement, and inventory policy is of continuous review type. The production lines are balanced. All other work cells continue operation as long as possible when any operating unit fails. After that they remain idle until the failed unit is replaced, and the system starts performing balanced again.

The probability of a failed item being located in any of the production line is the same. To determine the system downtime and work in process inventory in the lines, it is necessary to locate the failed components work cell. Table 1 shows the probabilities of the locations of the failed component and their replacement times. For example, the probability that a failed unit is in work cell A is 0.2, and the mean time required to replace this unit is 0.4 time units. Variance of the replacement times is taken to be 4. These values may be varied according to the nature of work done, and the load on the operating unit in the work cells.

Cell(i) A(0.4) B(0.5) C(0.3) D(0.4) *

Cell(i) P(i) Cell(i) E(0.4) 0.20 J(0.3) F(0.3) 0.30 K(0.4) G(0.4) 0.15 L(0.3) H(0.4) 0.15 M(0.3) I(0.5) 0.20 * Table 1. Location probabilities of failed units.

P(i) 0.2 0.3 0.2 0.3

P(i) 0.25 0.30 0.15 0.30

These assumptions are incorporated in simulating the system to develop a jointly optimized (S, s, T) policy that is cost optimal and to determine the system downtime and work in process inventory for the jointly optimized policy.

3.1 Cost Formulations Maintenance costs are of two types; block replacement (Cb) costs per unit, and individual failure replacement costs (Cf) per unit. Inventory costs are regular (Co) or emergency (Ce) ordering costs per order, holding costs (Ch) per unit per time unit and shortage costs (Cs). Computation of the total cost for the system over time requires the consideration of the following principles.

1. Ordering costs are incurred if the present inventory level (ILt) falls below the reorder level.

TCu = TCp + Co TCu = TCp + Ce

if s ILt 0 if ILt 0

where TCu is the total updated cost and TCp is the previous updated total cost. The ordering quantity (Q) is, Q = S - ILt if s Ilt

2. Inventory holding cost is computed for inventory level between any two events that generate the

demand for one or more spare units. TCu = TCp + Ch.(t - tp).ILp if ILp > 0

where t is the present simulated time and the subscript p denotes values after the previous event.

3. Inventory shortage cost is accrued for each spare unit remaining unavailable for each time unit.

TCu =TCp + Cs.(t -tp).ILp

if ILt < 0

The total shortage cost here is assumed to be dependent on the length of time (t -tp) and the quantity shortages (ILp). The cost components of inventory shortages cost, which are only due to unavailability of spare parts, are: (i) cost for idle manpower, (ii) any financial penalty for late completion of any scheduled products or any other consequences, (iii) any present profit loss due to shortage of end products in the current market and (iv) any future profit loss. It is difficult to estimate the loss of goodwill. However, the estimated future profit loss is taken as the loss of goodwill. It must be mention here that similar cost parameters can be considered for machine downtime due to preventive and failure maintenance. To calculate the shortage cost per unit one must rely on the historical data on cost and shortages.

4. Individual failure replacement cost is incurred in the event of failure of Ni items (i = 1, 2, 200)

and if the spares required are available. TCu = TCp + Cf.Ni if ILt > Ni

In case of spares shortage, the failed items are kept inoperative until the spares become available.

5. Block replacement cost is incurred after every block replacement.

TCu = TCp + N0Cb

if t = m.T

where N0 is the total number of operating units (200 for the present study) and m is any nonzero integer. If spares fall short of N0 in block replacement instant, the available spares are used and the (N0 - ILt) units are kept operative but are replaced as soon as possible.

The work cells remains down or idle during the replacement period or if spares are unavailable. In the event of failure of a component, the affected production line and work cells are detected. All the work centers in the affected production line are allowed to continue their present assignment. After that the work cells remain down until the failed work cell is in up condition and caught up its assignment. Accumulation of work in process inventory takes place between the work cells during this time. The whole production line then starts to operate in balanced mode again. To take the number of work cells in down condition, a composite downtime-work cell variable is devised. Similarly the number of work in process inventory is multiplied by the time units in this state to take in account the time duration of the in-process inventories.

4. EXPERIMENTAL DESIGN The life times of the operating units and the order lead times are assumed to follow Weibull distribution. It is a family of distributions described by two parameters (shape and scale). The individual unit replacement time is chosen to follow the Gamma distribution [8] which is also a two parameter (mean and variance) distribution. The input cost data and statistical parameters are selected so as to follow those used by Kabir and Olayan [7], and to study their effects on system performance.

For inventory related costs, regular ordering cost is varied from $100 to $200 in increments of $10. The emergency ordering cost is taken to be three times of that for regular ordering. Inventory holding cost per spare unit per time unit is varied from $0.25 to $2.50 in increments of $0.25. Similarly, the shortage cost is varied from $6 to $24 in $2 increment. Maintenance related costs are failure and block replacement costs per operating unit. Cost of a failure replacement is varied from $20 to $110 in increment of $10. Block replacement cost is varied from $10 to $50 in increments of $4.

The developed simulation model is of non-terminating type and has to be warmed up to a steady state before experimenting with each of the input data sets. Welchs graphical procedure [8] with window value 5 is employed to determine the warm up period for the model. Accordingly, each of the experiment is continued for up to 10000 time units and results from the first 2000 time units are excluded to eliminate the transient components of the results. Experimentation with each of the data set are conducted for 10 replications. Means and 95% confidence intervals are constructed for the

results for each of the experiments. The modeling and experiments are carried out using a simulation package SIMSCRIPT II.5. 5. RESULTS AND DISCUSSIONS Numerical results and analysis of the effects of various statistical and cost parameters on the behaviour of the proposed (S, s, T) system are presented along with necessary figures and tables. Separately optimized (S, s) and (T) policies are also juxtaposed to compare the relative cost effectiveness. Table 2 shows these results for ten data sets with ten different order lead time shape parameters (o), the scale parameter being fixed at 50. For the 10 test problems presented in Table 2, the range of cost increase, due to separate policies, is from 2.81% to 8.77% with a mean 6.67% and standard deviation 2.12. These results clearly show that jointly optimized policies are superior to their separately optimized counterparts. This is because the decision variables are allowed to be adjusted for the interaction among themselves. Investigation for the effects of the cost and statistical parameters yields the same results. These are described below. Set 1 2 3 4 5 6 7 8 9 10 Joint (S, s, T) Separate (S, s) & (T) Comparison (S, s, T) Average (S, s) (T) Average (AC2) / Percentage Cost (AC1) Cost (AC2) (AC1) (%) Increase 200,10,225 176.8 230,10 225 183.4 1.0373 3.73 200,10,225 178.2 230,10 225 183.2 1.0281 2.81 210,20,225 181.6 230,20 225 197.6 1.0881 8.81 210,20,225 181.3 230,20 225 196.3 1.0827 8.27 210,20,225 181.8 240,30 225 197.7 1.0875 8.75 220,30,250 185.5 240,30 225 197.4 1.0642 6.42 230,30,250 185.7 240,30 225 197.2 1.0619 6.19 230,40,250 186.9 240,40 225 203.3 1.0877 8.77 240,40,275 190.4 240,40 225 203.8 1.0704 7.04 250,40,275 192.1 240,40 225 203.4 1.0588 5.88 Table 2. Jointly and separately optimized policies (for Co=100, Ch=0.5, Cs=12, Cf=60, Cb=10 and o varying form 2.00 to 4.25).

5.1 Order Lead Time Shape Parameter Table 2 shows the results for different values of order lead time shape parameter. Smaller values of this parameters indicate smaller delivery times. Therefore the inventory levels are lower with smaller shape parameters and vice versa. For (S, s) & (T) policies, the replacement interval (T) remain unchanged because order lead time shape parameter is not related to maintenance and (S, s) inventory levels need to be high for higher order lead times in order to prevent spares shortages. However, the replacement interval increases to guard against frequent large demands and the inventory levels are lower in the (S, s, T) policy. Consequently, the jointly optimized policies are more cost effective than the combination of the separate ones.

210 Average Cost 200 190 180 170 2 S,s,T S,s & T 3 4 Life Time Shape Parameter

Figure 2. Effect of life time shape parameter on jointly and separately optimized policies.

5.2 Component Life Time Shape Parameter Smaller values of this parameter means smaller lives of the operating components. As the parameter increased, the replacement interval also increased due to the higher life times, and consequently both the (S, s) inventory parameters decreased to ensure cost optimality. The replacement interval is higher in (S, s) & (T) policies due to larger shape parameters but the inventory levels are also higher and the average total cost becomes higher as well. This is shown in figure 2 for Co=100, Ch=0.5, Cs=12, Cf=60, Cb=10 and t varying form 2.00 to 4.25, scale parameter 3).

200 Average Cost 195 190 185 180 100

120

140

160

180

200 S,s,T S,s & T

Ordering Cost

Figure 3. Effect of ordering cost on jointly and separately optimized policies.

5.3 Regular Ordering Cost Ordering cost affects (S, s, T) policy significantly. As ordering cost increase, the inventory level increases making lesser number of orders, and the replacement interval also increases to keep the average cost lower. For the (S, s) & (T) policy, the replacement interval remains constant at a smaller value (more frequent block replacements, and higher cost) and inventory levels increases with ordering cost making the average cost higher. Figure 3 shows the effect of ordering cost for Ch=0.5,

Cs=12, Cf=60, Cb=10 o=3, scale parameter=5, t=4, scale parameter 50 and Co varying from 100 to 200).

5.4 Inventory Holding Cost The (S, s, T) policy is cost optimal compared to the (S, s) & (T) policies because as inventory holding costs increase, the inventory levels (S, s) decrease, and the replacement interval (T) also decreases to compensate for the lower inventory levels. In (S, s) & (T) policies, the inventory levels decrease as well but the replacement interval cannot be adjusted accordingly because holding cost is an inventory related cost only. Figure 4 shows the effect of holding cost with the similar set of data as above except the holding cost is varied from $0.25 to $2.25.
205 Average Cost 200 195 190 185 180 0.25

0.75

1.25

1.75

2.25 (S,s,T) (S,s & T)

Inventory Holding Cost

Figure 4. Effects of inventory holding cost

5.5 Inventory Shortage Cost The effect of inventory shortage cost on average cost is similar to that of holding cost and again the (S, s, T) policy performs better than the (S, s) & (T) policies for the range of shortage cost considered. For (S, s, T) policy, the value of S decreases while that of s increases to safeguard against higher shortage cost, and the replacement interval decreases to take advantage of the very high reorder level. This reduced the breakdown replacement and average inventory costs. The (S, s) & (T) policies show higher (S, s) levels and constant (T) which causes the policies cost more than the (S, s, T) policy.

5.6 Block Replacement Cost Block replacement cost significantly affects the (S, s, T) policy by dominating the maintenance strategy. As this cost increases, the replacement interval also increases while both the inventory parameters slightly decrease. For higher replacement costs, this policy and also the combination of the

separately optimized policies recommend failure replacements of operating units. The (S, s) and (T) policies, on the other hand produce more or less the same effect, but the average cost becomes higher. This is because being a separate strategy, the inventory levels do not adjust with the replacement intervals.

5.7 Failure Replacement Cost The effect of this cost is the opposite to that of the block replacement costs. For increasingly higher failure replacement costs, the (S, s, T) policy produces lower block replacement intervals to ensure minimal failures. Frequent block replacement requires higher inventory parameters to guard against shortage costs. (S, s) and (T) policies respond to the increased failure replacement cost similarly, but again, the inventory parameters remain unchanged at higher values, incurring higher average cost. Figure 5 shows the cost functions for the (S, s, T) and (S, s) and (T) policies for the same data for ordering cost except the failure replacement cost varying from $20 to $110.

210 Average Cost 205 200 195 190 185 180 20 (S,s,T) (S,s & T) 40 60 80 100 Failure Replacement Cost

Figure 5. Effect of failure replacement cost on jointly and separately optimized policies.

System down time and work in process inventory (WIPI) although not directly affected by the cost parameters, depend on inventory and maintenance parameters. Specifically, the reorder level is found to have the most significant effect on down time and WIPI, because this level serves as a surge tank for spare units availability. The best results for these two system availability parameter is found to have very high reorder level. To optimize the system in terms of downtime or WIPI would not be cost effective as well because of the higher required inventory levels. Block replacement interval has mixed effects on these two parameters. Smaller replacement intervals ensure smaller numbers of component failures and disruption of operations, but also require frequent plant shutdowns for maintenance

purposes. Higher replacement intervals help avoid this problem at the cost of disturbances in operations due to failure of operating units.

6. CONCLUSIONS For nearly all the scenario studied, the jointly optimized (S, s, T) policy yielded better and cost effective solutions than the combination of the separately optimized policies. This becomes possible due to the fact that all the three decision variables have the freedom to interact with each others effects to generate the optimal solution. Separately optimized policies can influence either maintenance or inventory policies, but not both at the same time. However, there are cutoff points in terms of component life time shape parameter and failure replacement cost. In the present study, separately optimized policies provided better solution for life time shape parameters below 2.6 and failure replacement cost below $30 per unit. This indicates that the trade off between inventory and maintenance costs is possible only within certain ranges of cost and statistical parameters.

A cost optimal solution is not guaranteed in terms of system downtime and work in process inventory. Rather, the best results considering these two system availability parameters come from higher inventory levels (especially higher reorder level) which adds extra costs for maintaining high inventories.

7. REFERENCES [1] Dilworth, J.B., Production and Operations Management, McGraw Hill, 1993. [2] Higgins, L.R., and Morrow, L.C., Maintenance Engineering Handbook, McGraw Hill, 1977. [3] Kabir, Z., and Olayan, S.A., Joint Optimization of Age Replacement and Continuous Review Spare Provisioning Policy, Int. J. of Operations and Production Management, vol.-14, no.-7, 1996a, pp53-69. [4] Osaki, S., Kaio, N., and Yamada, S., A Summary of Optimal Ordering Policies, IEEE Transaction on Reliability, Vol. 30, 1981, pp272 - 277 [5] Park, Y.T., and Park, K.S., Generalized Spare Ordering Policies with Random Lead Time, European Journal of Operations Research, Vol. 23, 1986, pp320 - 330. [6] Acharya, D., Nagbhushanam, G., and Alam, S.S., Jointly Optimal Block Replacement and Spare Provisioning Policy, IEEE Transactions on Reliability, Vol. R-35, No. 4, 1986, pp447-451. [7] Kabir, Z., and Olayan, S.A., Joint Optimization of Age Based Preventive Replacement and Continuous Review Spare Provisioning Policy, European Journal of Operations Research, no.90,1996b, pp171-181. [8] Law, A.M., and Kelton, W.D., Simulation Modeling & Analysis, McGraw Hill Publishing Company, 1991.