A model for cost effective improvement of a raw material management in the inventory: A Case study

Abstract: The single largest expenditure in the production industry is usually the materials´ costs. In the average producing company, half of the sales revenue covers the materials´ costs. Raw material inventory aims to have the right amount of material, in the right place and at the right time, for as low cost as possible. In the raw material inventory there are often different critical items and the amount of them can be hard to handle at one time. In this thesis a cost effective model was developed for the raw material inventory management. Starting with identifying the most critical raw materials and the relationships between them and the first step in the production. It is also important to work with the information flow and the model aims to find what information each department needs and establish a suitable communication channel between the departments. In order to test the applicability of the model it was tested on a case company. The result from the model testing was new placements for the raw materials and a new communication flow.