Factors influencing effective safety stock dimensioning in inventory management - A case study within the automotive industry

Abstract: Poor inventory management affects many companies today which has a negative impact on both company profits and the level of customer service provided. A critical aspect of inventory management involves maintaining a balance between safety stock levels and customer service level. Implementing appropriate safety stock levels is therefore important for companies, but also challenging given the difficulty in predicting uncertainties. In this thesis, the authors have had the opportunity to examine a specific part of the inventory at Volvo Cars’ assembly facility in Torslanda. However, the inventory is affected by inappropriate safety stock levels which have a direct effect on the company’s operations and incurring additional expenses. Therefore, the purpose of this thesis was to identify and increase the understanding of factors and challenges that influence the setting of appropriate safety stock levels for items included in the inventory at Volvo Cars Torslanda (VCT). In the literature review section, an introductory overview of inventory management and safety stock dimensioning are presented and three major areas of importance are examined to address the factors, challenges and potential opportunities related to safety stock dimensioning. This study was conducted using a qualitative case study methodology where primary data was collected through semi-structured interviews with the employees at the case company. The findings from the empirical data collection indicate that there are several factors that influence the dimensioning of safety stock levels and a lack of transparency within the departments at VCT, which pose challenges to the setting of safety stock levels. It was further evident that there was a lack of transparency and knowledge sharing between the departments at VCT, preventing the accurate decision-making for their safety stock levels. This, in turn, results in inappropriate safety stock levels, adding additional expenses to the company. Further, the empirical data was analyzed together with the existing literature discussed in this thesis. The main outcome derived from this study indicates that if VCT increased their knowledge sharing by implementing cross-functional teams and continuous improvement practices in the departments, they would be able to increase the effective collaboration between the departments to establish appropriate safety stock levels.