Inventory Management in Multi-echelon After-Sales Service Networks

The rapid improvement in production technology over the last two decades has reduced the difference in quality of products produced by competitors. This has resulted in a paradigm shift in the outlook of firms from a product-centric view to a more customer-centric view. Consequently, after-sales service or warranty is high on the agenda of firms in a service supply chain. In general, firms offer service contracts that guarantee a quick turnaround time for repair of faulty components, while ensuring full functionality of their returned product. In this chapter, we focus on such contracts from an inventory management perspective in a multi-echelon service supply chain. The customer returns arrive at various service centers spread over a region. The repair activity essentially involves identifying the faulty component, and replacing it with a repaired component (if available) or with a new component. The faulty components are then collected and sent to a common repair center. The repaired components are then returned to the service centers, where they shall be used to satisfy demand generated by future returns. The problem is modeled using M/M/1/K queueing system, and we derive properties of the total cost function.