Development of a Decision Support Tool for the Process of Deciding Inventory Levels : A Study at The Absolut Company
(2014) MTT820 20141Engineering Logistics
- Abstract
- Background: Supply Chain Management is receiving increased attention as companies are trying to remain competitive in a global and challenging environment. An important topic to consider when managing the supply chain is inventory control. Companies today have enormous investments in inventories, which means that there are potential improvements regarding tied up capital in raw materials, work-in-progress and finished goods. There are a variety of tools available in the theory to support the process of determining inventory levels, but these general tools are not suitable for every company.
Problem description: This master thesis was conducted at The Absolut Company (TAC) – a large spirits manufacturer. They are responsible for the... (More) - Background: Supply Chain Management is receiving increased attention as companies are trying to remain competitive in a global and challenging environment. An important topic to consider when managing the supply chain is inventory control. Companies today have enormous investments in inventories, which means that there are potential improvements regarding tied up capital in raw materials, work-in-progress and finished goods. There are a variety of tools available in the theory to support the process of determining inventory levels, but these general tools are not suitable for every company.
Problem description: This master thesis was conducted at The Absolut Company (TAC) – a large spirits manufacturer. They are responsible for the production of Absolut Vodka, a premium vodka brand. As for any manufacturing company it is crucial that the production constantly has material available to avoid stoppages in the lines. The inventory of the bottle cap, which is one of the materials used in the production process, has historically been kept high to ensure constant supply, but now TAC has started to question if these is managed correctly. Hence, there is a desire from TAC to develop a better understanding of what is affecting the inventory levels. There is also a need for an analytical tool that supports the decision making process related to the inventory levels of the bottle caps.
Purpose:The purpose of this master thesis is to investigate which factors affect the inventory levels of bottle caps at TAC and to develop a decision support tool for the process of determining appropriate inventory levels for the bottle caps.
Research questions:
1. What factors are affecting the inventory levels at TAC?
2. How do the identified factors affect the inventory levels of bottle caps at TAC?
3. How should a tool for deciding appropriate inventory levels of the bottle caps at TAC be designed?
Methodology: The research approach for this thesis is a systems approach and the research is performed inductively. A case study has been chosen as research strategy and the design of the case is single case and single unit of analysis. The system is studied by analyzing both qualitative (interview and observations) and quantitative data (operational data from TAC’s ERP system). The quality of the research is evaluated based on the dimensions reliability and validity.
Conclusion: During the analysis it was concluded that the factors affecting the inventory levels at TAC come from the cycle and safety inventory. The identified factors associated with the cycle inventory were supplier lead time, purchase batching and production batching, while the factors affecting the safety inventory were forecast accuracy, quality defects, delivery reliability and delivery dependability. From the analysis it was concluded that the factors purchase batching, forecast error and delivery reliability contributed the most to the inventory levels at TAC.
The decision support tool was designed to suggest appropriate inventory levels and to give the user an overview of how much each factor contributes to the inventory. In the tool a baseline scenario, reflecting the current situation, and two alternative scenarios are presented. One scenario shows appropriate inventory levels to cover for the mean error and the other scenario is calculated to cover for the maximum error. The tool also gives the user an overview of all the factors affecting the inventory levels of caps that can be used to spread the information in the company and create understanding across departments. Furthermore, the decision support tool can be used to analyze how improvements or deteriorations of the factors affect the inventory levels, to support TAC’s supply chain department in deciding which improvement project should be prioritized. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/4857077
- author
- Adolfsson, Anton LU and Lundin, Erik LU
- supervisor
-
- Eva Berg LU
- Joakim Kembro LU
- organization
- course
- MTT820 20141
- year
- 2014
- type
- M1 - University Diploma
- subject
- keywords
- Inventory level, decision support tool, spreadsheet model, inventory control, factors affecting inventory levels
- report number
- 5774
- language
- English
- id
- 4857077
- date added to LUP
- 2014-12-04 14:19:00
- date last changed
- 2014-12-04 14:19:00
@misc{4857077,
abstract = {{Background: Supply Chain Management is receiving increased attention as companies are trying to remain competitive in a global and challenging environment. An important topic to consider when managing the supply chain is inventory control. Companies today have enormous investments in inventories, which means that there are potential improvements regarding tied up capital in raw materials, work-in-progress and finished goods. There are a variety of tools available in the theory to support the process of determining inventory levels, but these general tools are not suitable for every company.
Problem description: This master thesis was conducted at The Absolut Company (TAC) – a large spirits manufacturer. They are responsible for the production of Absolut Vodka, a premium vodka brand. As for any manufacturing company it is crucial that the production constantly has material available to avoid stoppages in the lines. The inventory of the bottle cap, which is one of the materials used in the production process, has historically been kept high to ensure constant supply, but now TAC has started to question if these is managed correctly. Hence, there is a desire from TAC to develop a better understanding of what is affecting the inventory levels. There is also a need for an analytical tool that supports the decision making process related to the inventory levels of the bottle caps.
Purpose:The purpose of this master thesis is to investigate which factors affect the inventory levels of bottle caps at TAC and to develop a decision support tool for the process of determining appropriate inventory levels for the bottle caps.
Research questions:
1. What factors are affecting the inventory levels at TAC?
2. How do the identified factors affect the inventory levels of bottle caps at TAC?
3. How should a tool for deciding appropriate inventory levels of the bottle caps at TAC be designed?
Methodology: The research approach for this thesis is a systems approach and the research is performed inductively. A case study has been chosen as research strategy and the design of the case is single case and single unit of analysis. The system is studied by analyzing both qualitative (interview and observations) and quantitative data (operational data from TAC’s ERP system). The quality of the research is evaluated based on the dimensions reliability and validity.
Conclusion: During the analysis it was concluded that the factors affecting the inventory levels at TAC come from the cycle and safety inventory. The identified factors associated with the cycle inventory were supplier lead time, purchase batching and production batching, while the factors affecting the safety inventory were forecast accuracy, quality defects, delivery reliability and delivery dependability. From the analysis it was concluded that the factors purchase batching, forecast error and delivery reliability contributed the most to the inventory levels at TAC.
The decision support tool was designed to suggest appropriate inventory levels and to give the user an overview of how much each factor contributes to the inventory. In the tool a baseline scenario, reflecting the current situation, and two alternative scenarios are presented. One scenario shows appropriate inventory levels to cover for the mean error and the other scenario is calculated to cover for the maximum error. The tool also gives the user an overview of all the factors affecting the inventory levels of caps that can be used to spread the information in the company and create understanding across departments. Furthermore, the decision support tool can be used to analyze how improvements or deteriorations of the factors affect the inventory levels, to support TAC’s supply chain department in deciding which improvement project should be prioritized.}},
author = {{Adolfsson, Anton and Lundin, Erik}},
language = {{eng}},
note = {{Student Paper}},
title = {{Development of a Decision Support Tool for the Process of Deciding Inventory Levels : A Study at The Absolut Company}},
year = {{2014}},
}