A Real Options Approach to Quantity and Cost Optimization for Lifetime and Bridge Buys of Parts

Abstract

Mismatches between part procurement life cycles (especially for electronic parts) and the life cycles of the systems that parts are used in cause systems with long manufacturing and/or support lives incur significant obsolescence management costs. While lifetime and bridge buys, which are used to manage part discontinuance (i.e., obsolescence) during the support of critical systems are simple in concept, the challenge is determining the optimum number of parts to buy and understanding their true cost. This report presents a real options approach to valuate lifetime and bridge buys and to determine the optimum part quantity for a lifetime or bridge buy. The approach accommodates uncertainties in demand, holding costs and end of support dates.

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Document Details

Document Type
Technical Report
Publication Date
Dec 01, 2015
Accession Number
AD1014673

Entities

People

  • Navid Goudarzi
  • Peter Sandborn

Organizations

  • University of Maryland

Tags

Communities of Interest

  • Advanced Electronics
  • Biomedical
  • Human Systems

DTIC Thesaurus Topics

  • Complex Systems
  • Cost Analysis
  • Costs
  • Counterfeit Parts
  • Cycles
  • Delphi Method
  • Electronic Components
  • Engineering
  • Life Cycle Costs
  • Life Cycles
  • Manufacturing
  • Mechanical Engineering
  • Money
  • Obsolescence
  • Operations Research
  • Simulations
  • Universities

Readers

  • Life Cycle Cost Analysis
  • Systems Analysis and Design

Technology Areas

  • Microelectronics