Spare Parts Inventory Management - A Case Study at Axis Communications AB

Abstract

Title: Spare Parts Inventory Management - A Case Study at Axis Communications AB

Purpose: The purpose of the thesis was to explore the phenomenon of spare parts in the forward supply chain and identify the challenges, gaps, and opportunities to increase the overall efficiency of their spare parts inventory management practices.

Background: Organisations have recognized the need for balancing the supply and demand in inventory management to enhance the supply chain performance, cost and effectiveness. With excess supply resulting in capital tie-up and waste, and insufficient supply leading to stock-outs, decreased service levels and customer satisfaction. Having different product categories, including main products, accessories and spare parts plays unique roles, with spare parts particularly vital for the repair and maintenance in the after sales period which also has high uncertainty in its low demand. Today, Axis does not have a good strategy on dealing with spare parts in their forward supply chain and sometimes denote these as accessories because they sell these to customers. Therefore, a detailed study of relevant topics along with inventory frameworks was done to analyze and provide recommendations on how to deal with the spare parts to improve the overall efficiency in the supply chain.

Method: The research method of the study chosen is a single case study and some action research elements acting as a supplementary tool. An abductive approach has been used to have better flexibility in decision making with the available data and literature studied. The data gathered for this study is a mix of qualitative and quantitative from semi-structured interviews about the current working of the supply chain process of spare parts.

Findings: The findings from this case recommend a systematic approach to handle spare parts inventory within Axis’s supply chains having a distinction between forward and reverse supply chain and the role of spare parts in providing customer support and in generating revenue. The product life cycle and segmentation analysis based on demand volume and revenue were identified as crucial steps. Through strategic planning, it is recommended to retain the high runners in the forward supply chain under few conditions and the remaining to the reverse supply chain considering the importance of service rather than sales of spare parts. Utilization of centralized hubs or an omnichannel approach in a reverse supply chain will improve the overall operational efficiency and reduce the obsolescence inventory. Our proposed solution aims to enhance inventory management effectively while focusing towards customer satisfaction but not losing revenue opportunities as well.

Popular Abstract

For many years, inventory management has played a significant role in organisation’s planning and control. It can assist in managing uncertainties of demand and supply factors to streamline an efficient flow in the supply chain.

Axis has two supply chains namely forward and reverse supply chain. The aim of this master thesis is to explore the phenomenon of spare parts in the Axis forward supply chain with respect to their categorization and how it is handled based on demand patterns. Spare parts inventories differ from other products as the demand is predominantly low and has high variability. The purpose of spare parts lies in the after-sales services where they can be used to replace the main component of the product. The demand for spare parts arises after a period of time once the main product is sold in the market. In Axis, one spare part supports multiple main products. Currently, there is no appropriate strategy to handle the spare parts efficiently. The major gap identified was the lack of differentiation between the spare parts and accessories as both of them are treated the same in the supply chain. In the forward supply chain, they are sold as accessories based on distributor demand and in the reverse supply chain, they are used to provide service to customers in the form of replacements.

The primary focus is to categorize the spare part based on its purpose and functionality in the supply chain. The second focus was to conduct a segmentation for spare parts to understand the demand variability. The spare parts available in the forward supply chain were considered for our analysis. The product life cycle and segmentation analysis based on demand volume and revenue were identified as the important factors. The ABC segmentation resulted in identifying the important spare parts that have high annual demands. From Axis point of view, it is believed that the spare parts are to be seen more from a service perspective rather than a sales perspective. Through strategic planning, it is recommended to keep high runners in the forward supply chain inventory while the remaining should be moved to reverse supply chain inventory taking the product life cycle of the main product as well as the corresponding spare part into consideration.

Further, an omnichannel distribution approach in the reverse supply chain will improve the overall efficiency and reduce the obsolescence of stock. This distribution will store all the necessary inventory at a centralized hub that will facilitate the requirements of the smaller hubs. The proposed recommendations aim to enhance inventory management practices of spare parts to help Axis increase its supply chain efficiency while focusing on customer satisfaction and optimizing stock levels. This approach can be relevant for companies that are experiencing similar problems.

• author: Amulani, Amit and Sridharan, Manoj
• supervisor: Fredrik Olsson
• organization: Production Management
• course: MIOM01 20241
• year: 2024
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Spare parts, forward and reverse supply chain, supply chain segmentation, product life cycle, supply chain strategy, inventory management
• other publication id: 24/5277
• language: English
• id: 9158805
• date added to LUP: 2024-08-26 13:55:48
• date last changed: 2024-08-26 13:55:48