Forming a strategy for distribution inventory management

Abstract: For most companies, especially the ones handling large flows of material there are buffers in different stages of the value chain, also referred to as inventory. By effectively managing inventories, businesses can see bottom line impact on financial performance factors such as revenue streams, costs and capital efficiency. The authors built a relevant frame of references based upon theories within product segmentation, inventory control and management. By applying the methodologies found in literature on a case at Sandvik, a framework for product segmentation and inventory management could be developed. The framework was thereafter applied at the case company to form applicable strategies. Through a closer segmenting process, the products of Sandvik could be divided into the groups; major components, components, commercial spare parts and wear parts. It was concluded that in order to achieve availability a segmentation based on sales volumes for aftermarket and new equipment demand, taking regard to life cycle stages was to be conducted for major components. A segmentation based upon cost volume and frequency was to be carried out for components. Factors upon which the two product groups were to be differentiated were concluded to be segmentation criteria, segmentation data, stockroom assortments, decoupling points and segmentation and inventory control process. To realize suggested strategies at the case company the authors created decision support tools to be implemented at the case company.