Benefits and challenges with coordinated inventory control at Volvo Parts

Abstract: Coordinated inventory control is a concept within inventory management where decisions are based on stock and demand situations throughout a whole system of interconnected warehouses and inventories, and where control parameters are simultaneously determined and set at all installations. This thesis is a part of a larger research collaboration project in coordinated inventory control where NGiL (Next Generation Innovative Logistics), a Lund based research institute, and Volvo Parts AB in Gothenburg participate. Volvo Parts handles the aftermarket distribution, sales and related services for the Volvo Group companies and has centrally controlled complex multi-level warehouse structures and routines. These warehouse structures are well suited for a coordinated inventory control approach. A new multi-level inventory control model has been developed by NGiL especially for the Volvo Parts supply chain in Europe. The model utilizes advanced mathematical concepts to mimic Volvo Parts inventory systems consisting of several dealers and warehouses on a market. The model optimizes the reorder points at all locations with the aim of minimizing the total costs of the system while still maintaining or increasing today’s service to end customers. The purpose of this thesis is to prepare for this pilot study by analyzing the information systems, processes, structures and routines at Volvo Parts, design methods for extraction and calculation of the necessary parameters, select an appropriate market and to perform a selection of suitable spare parts and accessories to be included in the pilot study. A suitable market for the pilot study and a method to select and classify 100 parts with all necessary parameters are the main results of the thesis. The study is performed as an action research project, meaning that the authors are stationed at Volvo Parts headquarters in Gothenburg and observe the daily work, perform the necessary data extractions from the IT systems themselves and conduct interviews on a daily basis. The gathered data is a combination of primary and secondary quantitative data from the IT systems and calculations, as well as a lot of primary qualitative data from interviews and observations. The authors also function as mediators between NGiL researchers and Volvo Parts personnel. The developed model is concluded to be a good representation of the reality of Volvo Parts’ supply chain on the selected market Spain, and the authors do not see any large obstacles in a generalization to other Volvo Parts markets with the same structure or even other companies. The one major discrepancy between the NGiL model and current Volvo Parts control methods is how service levels are measured and how goals on these service levels are achieved. We have also performed a simulation study for some of the selected parts and found that the potential for cost reductions is significant and that the optimized solution fulfills target service levels in almost all cases. We also found out that there are no clear correlations or patterns between the cost reduction and any of the part characteristics that were studied, implying that a larger simulation study or a real life pilot study is necessary in order to further investigate the full potential of the NGiL model.