Improving inventory management of spare parts business in a multi-echelon inventory system
Rahikainen, Mikko Petteri
Permanent address of the item is
Monitasoisen varastojärjestelmän hallinnan parantaminen varaosaliiketoiminnassa
The research question of this thesis was: How to reduce current inventory levels by actions found from literature without decreasing customer satisfaction? The aim was to investigate the Case Company’s multi-echelon inventory system through quantitative methods. To address the research question, relevant literature research is also needed. In the first chapters, a theoretical background is conducted as the lateral empirical phase. Scientific journals and articles are used as the base of the theoretical background. The purpose of the theoretical background is to cover the most important issues of warehousing management and item stocking decisions in a multi-echelon inventory in respect to the situation of The Case Company. The empirical part of this thesis starts with a description of the case company’s current inventory management principles. Then, the current situation is evaluated by key performance indicators in order to find the most problematic item groups. Data for this part was gathered from the Case Company’s reporting system. Upon knowing the current situation, actions for improvement are then analysed in a subsequent empirical phase. The result of the current situation is that every front line unit stock value consists mostly of locally non- or low-moving items in which case the relevant literature recommends downstream echelons to concentrate on high-moving items and distribution center (DC) distributes locally low moving items. When evaluated which locally low-moving items are returnable, the results show that front line units could reduce their inventory value by almost 25% even though the stock levels for high moving items were increased. During the data gathering and analysing process, multiple areas of improvements were also found. Firstly, the reporting system needs improvement because it does not show front line unit performance by local indicators. Furthermore, the reporting system does not include all order lines in its reports and some of the ordered lines are incorrect. Secondly, the Case Company should review its KPIs. The Case Company should add perfect order KPI indicator to achieve more accurate information about its performance. Lastly, purchasing policies need to be changed in front line units. The distribution center has shown its superiority especially in low moving items and thus it is recommended that DC is used more than it is currently as a default vendor.