After market service inventory management

• Main Author: Ang, Zi Qiang
• Other Authors: Rajesh Piplani
• Format: Final Year Project
• Language: English
• Published: 2010
• Subjects: DRNTU::Engineering::Manufacturing::Inventory control
• Online Access: http://hdl.handle.net/10356/40365
• Institution: Nanyang Technological University

Inventory rationing is becoming more and more widely applied in many industries. Classic examples include the airline industry and hotel management whereby customers are differentiated in terms of the service required by each customer. Aftermarket service provision is gaining recognition as well as companies realized that a big portion of the total revenue actually comes from here. An example of aftermarket service is the provision of supporting service parts for military weapon systems, a study done by Cohen [1]. Many studies had been done to show the effectiveness of inventory rationing in minimizing cost in providing parts and service for both before and after market. Hence we can see that a good inventory management system is equally important in both before and after market sale of parts and services. For this project, a (r,Q,K) inventory rationing policy is used. This rationing policy is compared with the traditional “separate stock” policy and the “round-up” policy to see which is the most cost efficient in minimizing total inventory cost. Optimum rationing levels together with the order quantity and reorder point are found through OptQuest in ARENA simulation software. With the values, total inventory cost is found and comparison will be made. Experiments are done to analyze which of the three policies is best in minimizing total inventory cost and at the same time satisfying the minimal service level requirement for different scenarios. First, the backorder cost of the different classes is varied based on a certain percentage of the Class 1 backorder cost. The service level is thus calculated and has to be satisfied. Next, we will vary the incoming demand for the different classes as compared to constant demand arrivals and analyze their effects on the total cost. Lastly, the ordering cost is varied. The results showed that inventory rationing is the better inventory management policy in terms of minimizing total cost regardless of different backorder costs, different demand arrivals and different ordering cost. However, this is achieved at the expense of a lower service level allocated to lower classes of demand. “Round-up” policy is able to set an equal standard of service level but at the expense of higher total cost. “Separate stock” policy, although is able to maintain a high service level for all the demand classes but the total inventory cost is extremely high due to high holding and ordering cost. This is one of the results of not using inventory pooling.