An activity based costing decision model for life cycle economic assessment in spare parts logistic management

Abstract

This article proposes an activity-based costing decision model that considers the life cycle of physical assets particularly, the logistics costs of non-repairable spare parts. The Weibull based failure rate behavior along the life cycle is considered to have a more realistic representation of the demand and a more accurate computation of the logistics costs associated with the different types of spare parts. Thus, through the use of this model it is possible to evaluate different inventory policies and their respective parameters in order to define efficient long-term inventory policies. Also, it represents a decision-making tool for assessing the effects of the different failure rates of each critical spare part. Finally, it can be used as an optimization tool for supporting the design of logistics policies namely, in terms of stock and service levels, and costs. The activity-based life-cycle costing (AB-LCC) model proposed here mitigates limitations of both activity-based costing (ABC) and life-cycle costing (LCC) approaches through a novel combination of these concepts. Theoretical and managerial contributions and several applications and extensions of the AB-LCC model are expected as it is discussed at the end of the article. Specifically, the model presented here is a valuable tool for maintainers to manage critical non-repairable spare parts inventories.