Inventory management: A high-level analysis of selected process elements, and factors impacting plan performance - A case study at Alfa Laval

Abstract: Purpose: The purpose of this thesis is to increase the effectiveness of the case company, Alfa Laval’s, inventory management by finding challenges, opportunities, and gaps within its current inventory management practices. Background: An essential part of an organization’s planning and control is inventory management, which helps manage supply and demand uncertainty as well as mismatches in upstream and downstream variables, as small changes in inventory management practices can greatly impact an organization's efficiency and responsiveness. Currently, Alfa Laval, a make-to-order (MTO) company, is implementing a new inventory management initiative, ATHENA, in hopes of reducing the amount of tied-up capital. The initiative focuses on creating a global inventory management process, a set of inventory planning principles, and key performance indicators (KPIs). However, Alfa Laval wants clarity on whether this is comprehensive enough or if there are gaps in the plan. Therefore, the following topics were analyzed: Strategic alignment, Inventory management, Classification, Inventory control, Forecasting, Collaboration, Key Performance Indicators, and Organizational structures. Method: The research method of this master thesis was a single case study, with a single unit of analysis which was Alfa Laval’s inventory management operations. The case study structure allowed a holistic, in-depth analysis of the phenomenon. An abductive research approach was also used as it provided flexibility in the formation and analysis of theories. The data in this thesis is primarily qualitative data from structured and semi-structured interviews. Findings: This study found that Alfa Laval’s ATHENA is a very comprehensive initiative and that the company has an adequate understanding of inventory classification, inventory control, and the usage of KPIs during the follow-up stage as well as the need for strategic alignment and finding a balance between centralized and decentralized organizational structures. However, the findings showed that the plan lacks focus on external variables that enable better inventory management. Primarily, forecasting and collaboration. For example, as an MTO company, Alfa Laval should focus on forecasting for components, as these items have an "independent demand" not directly linked to the unit demand. Additionally, in order to reduce the bullwhip effects on the supply chain and therefore inventory management, Alfa Laval should focus on increasing data quality shared with key suppliers and implement a "key customer" pool for interaction.