Reducing the tied up capital through investigation of production postponement and inventory

Abstract: VI Delimitations The company has several product families but only one is investigated in this project. There are today two main warehouses at the production site, the warehouse for raw material and the one for finished goods, where only the latter was studied. There are other places within the company where capital could be tied up as well, e.g. when products are being processed in a machine, but this was not examined either. The inventories were investigated by questioning its size and location. The suggested changes might require capacity or technical adjustments in the production; the feasibility or practicality of implementing those changes in reality is not discussed in depth in this report. Methodology At first, a literature study was carried out to find useable analytical tools for the inventory review and to understand the possibilities and the limitations with a postponement strategy. Company knowledge was obtained through interviews, observations and from the information systems. A simulation model was created to investigate if it was possible to have an intermediate storage at different steps in the production. Analysis In the first part of the analysis the main finding was the high inventory level in the finished goods inventory. The level was far exceeding the level set by Hyde themselves (safety stock + forecast) resulting in a high cost of tied up capital. A review was also carried out to look upon if the supposed inventory levels would have been sufficient to avoid stock outs in 2012. It showed two stock-out occasions during the year, where it would not have been possible to deliver to the customer in time. Due to the high inventory levels this was no problem in reality. Four different postponement scenarios were investigated where all or a few product groups were placed in an intermediate storage. Only one of the scenarios, to place product group YB before the mixing, was feasible since the other scenarios resulted in longer production times than the maximum time to shipping. This was true even though extensive investments in production capacity were accounted for. VII Results and conclusion The purpose of the master thesis has been fulfilled; ways to reduce the tied up capital have been recommended through general inventory reduction (871 kSEK/year) and partly the use of a postponement strategy. The most efficient way to reduce the inventory levels is to use a more flexible production planning where smaller batches are enabled. Flexible manufacturing is also required to make a postponement strategy possible. Postponement of some products could be beneficial but the savings are limited, hence postponement is only recommended if no additional investments are required.