Closing the Loop on Product-Based Services with Condition Monitoring

A provider of product-based services must maintain its products continuously in working order while they are dispersed among client firms. Because it retains ownership and control over the products, it can reuse and remanufacture them extensively. These practices motivate the use of condition monitoring to increase visibility of the product's condition and environment while in use. Under the proportional hazards model of product life, we formulate a model to assess the value of condition monitoring for reducing the replacement and remanufacturing costs associated with maintaining a fleet of products along with a stock of ready replacements. We analyze this model using a variant of an optimal replacement policy developed previously for monitoring at discrete intervals. Numerical results obtained by varying the length of the monitoring interval demonstrate the cost savings obtained by frequently monitoring the condition as compared to a replacement policy based only on age.