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Centralization of inventory management for spare parts

Petersson, Stefan and Sturesson, Simon (2014) MIO920
Production Management
Abstract
Background
Arriva DK currently has a decentralized organization where each depot is responsible for the inventory control of their spare parts. This type of organization often presents challenges when it comes to control and management. Arriva DK suffers from high order costs due to lack of coordination between the depots and the suppliers. To address these issues Arriva wants to introduce a central warehouse.
Purpose
The aim of the thesis is to optimize inventory management by creating simulation models that from a cost perspective explore the effects of introducing a central warehouse for spare parts.
To provide Arriva DK with simulation models of the supply chain and inventory management, both with – and without a central warehouse.... (More)
Background
Arriva DK currently has a decentralized organization where each depot is responsible for the inventory control of their spare parts. This type of organization often presents challenges when it comes to control and management. Arriva DK suffers from high order costs due to lack of coordination between the depots and the suppliers. To address these issues Arriva wants to introduce a central warehouse.
Purpose
The aim of the thesis is to optimize inventory management by creating simulation models that from a cost perspective explore the effects of introducing a central warehouse for spare parts.
To provide Arriva DK with simulation models of the supply chain and inventory management, both with – and without a central warehouse.
Method
The thesis is built on Hillier and Lieberman’s Operations research method. Data used in the thesis consist of both primary and secondary quantitative and qualitative data. Literature studies have also been done and are the basis for the theory. Two simulation models were built. The first model represents an optimized decentralized situation that uses joint replenishment. The second model represents a system with a central warehouse, which also uses joint replenishment. Thereafter the models were compared to determine if an investment in a centralized system is profitable.

Conclusions
The results from the simulation study showed that the total cost for the CW-model is higher than the DC-model in all scenarios. Both the holding- and order cost will be higher with a central warehouse.
The major advantage of using a central warehouse is that the number of orders to the suppliers will be reduced by more than 50%. This along with the suppliers only have to deliver to one location will result in price reductions on the products. Even with small discounts, will a central warehouse be profitable since the procurement cost represents such a large part of the total cost. (Less)
Please use this url to cite or link to this publication:
author
Petersson, Stefan and Sturesson, Simon
supervisor
organization
course
MIO920
year
type
M1 - University Diploma
subject
keywords
Central Warehouse, Joint replenishment, Multi-echelon, Simulation
other publication id
14/5482
language
English
id
4362211
date added to LUP
2014-03-24 15:33:24
date last changed
2014-03-24 15:33:24
@misc{4362211,
  abstract     = {{Background
Arriva DK currently has a decentralized organization where each depot is responsible for the inventory control of their spare parts. This type of organization often presents challenges when it comes to control and management. Arriva DK suffers from high order costs due to lack of coordination between the depots and the suppliers. To address these issues Arriva wants to introduce a central warehouse.
Purpose
The aim of the thesis is to optimize inventory management by creating simulation models that from a cost perspective explore the effects of introducing a central warehouse for spare parts.
To provide Arriva DK with simulation models of the supply chain and inventory management, both with – and without a central warehouse.
Method
The thesis is built on Hillier and Lieberman’s Operations research method. Data used in the thesis consist of both primary and secondary quantitative and qualitative data. Literature studies have also been done and are the basis for the theory. Two simulation models were built. The first model represents an optimized decentralized situation that uses joint replenishment. The second model represents a system with a central warehouse, which also uses joint replenishment. Thereafter the models were compared to determine if an investment in a centralized system is profitable.

Conclusions
The results from the simulation study showed that the total cost for the CW-model is higher than the DC-model in all scenarios. Both the holding- and order cost will be higher with a central warehouse.
The major advantage of using a central warehouse is that the number of orders to the suppliers will be reduced by more than 50%. This along with the suppliers only have to deliver to one location will result in price reductions on the products. Even with small discounts, will a central warehouse be profitable since the procurement cost represents such a large part of the total cost.}},
  author       = {{Petersson, Stefan and Sturesson, Simon}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Centralization of inventory management for spare parts}},
  year         = {{2014}},
}