Achieving a holistic inventory management process

Abstract

Materials management i.e. management or planning of material flows has received an increasing interest for decades. The competitiveness of companies is greatly affected by the companies’ ability to respond to market pressures for increased customization and short lead times. The trade-offs for increased product variety and shortened lead times are increased costs for storage and purchasing of materials. GMC is a manufacturing company, which is working actively to fulfill customer demands on product variety and short lead times. This puts pressure on the company's materials management systems to ensure that material flows and inventories are both flexible and cost efficient. GMC therefore created an inventory management process, which aims to reduce tied-up capital in inventory and improve the service level towards customers. GMC are however experiencing some challenges with this process. The process incorporates both the production function and purchasing function and extends across different planning levels, which creates communication barriers. The company furthermore has both MTS and MTO manufacturing strategies for its products and uses several different planning methods to manage the material flows. This makes it important to ensure that the planning methods are used in a suitable context. The aim of this thesis is to investigate the process and provide suggestions for improvements. The study was based on three research questions relating to the challenges experienced at GMC. The research method has been qualitative with data collection focusing on interviews. The empirical investigation presents a mapping of the process in its current state. The investigation shows that the planning methods kanban, MRP and consignment stock are used in appropriate contexts, but that there is no process that continuously ensures fit between planning methods and individual parts. It was also discovered that the challenges experienced with achieving functional integration in the process to a large degree were caused by ambiguities and uncertainties of the process boundaries and unclear division of responsibilities within the process. The investigation furthermore highlighted the fact that decisions regarding safety stock levels were almost entirely managed on operative level and that there was little transparency of these decisions to higher planning levels. The recommendations to GMC are: create a process for continuous matching between individual parts and planning methods; improve the functional integration through improved process management and monitoring; and lastly to improve the alignment between operative and strategic planning levels regarding safety stock decisions by implementing documentation routines and an inventory classification system to increase the transparency of decisions behind the safety stock levels.