Inventory control for raw materials - a case study at Volvo Olofström

Abstract

This master thesis is a project initiated by the fourth-party logistics company UBQ.
They aim to take over the management of the transportation and storage of raw material
for Volvo Car Body Components, VCBC, in Olofström. VCBC wants to remove the
storage of raw material in the production area. The thesis aims to link the both
companies’ requests together by describing the current situation, the size of the
warehouse in the solution and the savings that can be done.
The general production at VCBC consists of three steps; blanking, stamping, which is
the most costly, and assembly. VCBC receives raw material in mainly two flows;
through a supplier owned storage in Sölvesborg and through direct delivery. There
should be a two weeks stock in Sölvesborg, but analyses revealed that the amount is 7, 8
weeks of demand. Despite the large inventory, 10 % of the demanded material cannot
be delivered from Sölvesborg. The material must be stored in the production area for
heating before production. Also the direct delivered coils, due to lack of a warehouse,
are stored in the production area.
The reason why the inventory control for the raw material is inefficient is that the plans
sent to the suppliers correspond poorly to VCBC's actual need. This is the result of the
varying production planning routines in VCBC. VCBC's policy is to work with set
batch sizes, but these are very seldom kept and one reason for this is the restrictions of
the incoming material. The material is received in steel coils that cannot be split during
the blanking, which may result in too much blanked material in comparison to the set
batch size. Due to the natural variation of the coil sizes and the policy to keep set batch
sizes in the stamping, the authors recommend a blanked material inventory. A tolerance
interval of ± 10 % of the set batch size should be used in the stamping, to minimise the
size of the storage.
The storage of raw material should hedge against the variations in time and quantity
made by the supply and demand. According to Eisenhower, this could be done by safety
time, in general for timing uncertainties, or safety stock, generally used for quantity
uncertainties. Analyses showed that the uncertainties for the raw material mainly arose
from the sequencing in the stamping and the variations in the customer demand. By
using equations from Eisenhower, it was concluded that these variations should be
buffered against with two days of safety time. Adding the heating time, UBQ’s
warehouse should consist of four days of material. The solution would lead to a service
level, S2, of 97, 5 %. In comparison to the current service level on 90 % this is a
significant improvement, considering that the inventory also is decreased.
The area savings at VCBC with the new solution is approximately 1 500 m2. If the
blanked material inventory were to be located outside the production area, there would
be significantly additional space savings. A cost analysis was made for the current
situation and the solution. The analysis had many estimated values, due to the difficulty
to find precise information, and the fact that the solution is not implemented. The
analysis still gives a hint of the savings and it showed that the solution would save
32, 8 MSEK in logistical costs.

• author: Asker, elin and Stenius, Olle
• supervisor: Fredrik Olsson
• organization: Production Management
• course: MIO920
• year: 2008
• type: M1 - University Diploma
• subject: Technology and Engineering
• other publication id: 08/5304
• language: English
• id: 1979621
• date added to LUP: 2011-06-17 14:21:02
• date last changed: 2011-06-20 11:11:55