An Investigation into the Possibilities for Cost Saving in a Distribution Network with Demand Dependencies

University essay from Lunds universitet/Produktionsekonomi

Abstract: Inventory control is a subject that impacts more or less every section of most businesses, hence companies today view it as a crucial problem of strategic importance (Axsäter, 2015). Managing inventory is a complex task which can be made even more complex by considering multiple items interacting with each other throughout the supply network. This master thesis attempts to show, through a case study how the supply chain can be made more efficient by doing this in a supply chain of large spare parts for heavy machinery. In order to address the purpose, "investigate how companies can coordinate dependent demand in their inventory management and distribution network and to determine the associated benefits of doing this. A simulation tool has been developed in which a regular (S, s) policy has been compared to a new model in which the inventory positions of the products that are likely to be co-ordered are considered. Another attempt to make the supply chain more efficient was to stack products on the pallets rather than sending them one product on each pallet. The proposed model outperforms the (S, s) policy, mostly through savings in inventory costs and fewer pallets in the warehouse. However, the behaviour of the model is hard to predict, it requires a large amount of data and is also difficult to alter. The model performs very well when implemented in supply chains which have a good flow of information and coordination amongst supply chain partners,since it is reliant on the adequate availability of sales, production, warehousing and products data. Therefore, it is the authors’ recommendation that companies that do not have seamless information flows and high level of cooperation between supply chain players do not adopt the model in its current state, since the benefits relative to the additional complexity is small. It is also not recommended for companies that have short product life cycles since they will likely not have the long term data needed to run the model well. Stacking the products resulted in savings in labour and other costs and a reduction in the amounts of pallets in the flow. However, while trying to keep the same service level, the tied up capital increased significantly.

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