Customer Information Driven After Sales Service ... - RePub

2.7. After Sales Service at IBM - An Illustrative Case
We now discuss the planning solution for the two echelon network structure (i.e. coun-
try / region 2). Similar to Cohen et al. (1990), as an objective of spare parts planning,
IBM has to decide on the exact amount of inventory units that should be held at each
stock location. Due to a sufficient number of stock locations in each service region, it
turns out that each customer can be served from many stock locations within the service
deadline (i.e. overlapping service regions for different stock locations). Consequently, a
possibility of lateral transshipment is available to IBM, if the nearest stock location is out
of stock. The planning of spare parts inventories at IBM is performed by a Mixed Integer
Programming based software tool, which has been developed and patented by IBM (Erke
et al., 2003). The optimization model of this software tool is similar to the planning model
presented by Kranenburg and Van Houtum (2009). Both of these models seek to minimize
the holding and transportation costs via optimal placement of requisite spare parts
inventory in the network. The constraints to this objective are service deadlines, lateral
transshipments, and inventory balancing constraints. The formulated mathematical
problem is a non-linear mixed integer programming problem. The non-linear constraints
are linearized via approximation and the resultant mixed integer programming formulation
is used to estimate the base stock levels for each stock location. We discuss the
details of the planning situation and associated planning optimization model in Section
3.2.
As mentioned in the previous section, IBM is gradually replacing the three echelon
distribution structure and planning solution with a two echelon structure and an associated
planning model. It should be noted that the two echelon planning solution uses
considerably more information (i.e. customer location level demand data, customer location
data and contract data), therefore the decision to deploy a planning solution is
dependent on the available customer and demand data. We discuss this aspect in greater
detail in Section 3.2.
We now discuss some of the practical aspects that are not covered by either of the
above planning models. Both of these models assume that external suppliers who replenish
the HUB location are not capacitated. In practice, this is not true. For each
spare part type, IBM partners with many suppliers. These suppliers are limited by their
production capacities and their commitments to other OEMs. To counter this situation,
IBM uses the above models to estimate the stocking requirements for all stock locations
except for the HUB location. For the HUB location, IBM uses a time-phased inventory
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