Boost your spare parts supply - A case study on cooperation terms in the spare parts supply chain focused on the supplier-buyer dyad

Abstract: Purchasing has become an increasingly important function in manufacturing companies, as it accounts for a large extent of total spending and influences a company's competitive position. It is relevant for Tetra Pak, a global manufacturer of packaging and processing solutions, active since the 1950s. Tetra Pak has over 100.000 active units at customers site over the world, to service them and offer spare parts is both a significant source of revenue for Tetra Pak and a service requested by the customers. The customers expect fast responses, as breakdowns in the food industry have severe consequences. It implicates that a wide array of parts are needed to be made available with short notice globally. To achieve it, Tetra Pak is working with an adapted consignment stock strategy, referred to as the logistics agreement. It means that some suppliers hold materials in finished stock. It enables the suppliers to deliver with short lead times, with the condition that if Tetra Pak does not purchase the material according to forecast, Tetra Pak financially compensates the suppliers for the remaining stock. The purpose of the thesis was to understand how the logistics agreement worked, but also to understand the implications of the solution and determine if the strategy was beneficial to Tetra Pak. Further, the aim was to compare Tetra Pak's processes with literature and comparative companies and give improvement suggestions. The research was initiated with a literature review to compile knowledge from research within purchasing, after-sales services, and spare parts management. Based on that, an analysis model was created. The model helped to analyze the empirical data by dividing the area into three different parts: the overall goals with the strategy, which spare parts should be included in the strategy, and which suppliers should be included in the cooperation. The empirical data was collected mainly through interviews and quantitative analysis based on historical information from Tetra Pak's ERP. In addition to that, interviews were also conducted with strategic Tetra Pak suppliers and three comparative companies. With help from the structure of the analysis model, Tetra Pak’s processes were analyzed. The conclusion was that an adapted consignment stock strategy is favorable for spare parts. It increases availability, which is the main KPI for parts, to the customer. The cost of increasing availability is substantially lower than the alternative, which is to keep the material in stock. The main challenges to succeed are identifying the materials that get an added benefit from the solution and finding terms of the agreement ensuring a manageable scope of materials and compliance from the suppliers.