LAP - Raw Material Inventory Reduction

Raw Material Inventory Reduction in an Automobile Assembly Plant
Acknowledgement
My heartfelt and sincere thanks to my Academic Supervisor, Mr. K.M. Sharath Kumar, Sr. lecturer, MSRSAS for his constant support and encouragement throughout my project.
I am indebted to Mr. M.A. Alisha, Vice President -Materials, VST Tillers Tractors Ltd., Bangalore for giving me the concept for this project and sharing his industrial experience and knowledge. My sincere thanks to all the employees of VTTL for their assistance during the project work.
I am extremely grateful to Prof. G.Devakumar, H.O.D, MBA Department for his constant encouragement throughout the tenure of my project.
I remain indebted to Dr. S.R. Shankapal, Director, MSRSAS who has been a constant source of encouragement throughout the course. My sincere thanks to all the teaching and non-teaching staff of MSRSAS for their support during my project work.
I would like to express my sincere gratitude to my parents for their love and for providing access to good education throughout my life.
Pradeep Motwani 21-03-2009
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Abstract
Inventory ties up working capital and incurs holding cost which reduces profit for every excess stock held. Therefore, good inventory management becomes critical concern for any business to continually improve their customer service level and profit margin in todays competitive business environment. So there is always a need for determining an optimum raw material inventory level for an assembly plant so that it can avoid understocking and overstocking.
In the current project work an existing raw material inventory control methods practiced in the company was analyzed. In this process, scope of improvement in material classification, inventory level and delivery scheduling was identified. Later material classification was analyzed using single criteria and multi-criteria ABC classification. Inventory level analysis was done using Min-Max model and the impact of delivery schedules on inventory level was analyzed by trend analysis. With the help of service level calculation and total cost of holding safety inventory, new inventory level was proposed for multi-criteria material classification in the form of Min-Max model maintaining a minimum service level.
It was observed through cost benefit analysis that on-hand inventory and total annual cost of maintaining safety stock was reduced. Results showed 53.47% reduction in average inventory investment. Based on the result, suggestions toward maintaining the inventory level have been made and new scheduling policies were recommended to maintain the inventory.
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Table of Contents
Acknowledgement .................................................................................................................... ii Abstract .................................................................................................................................... iii Table of Contents .....................................................................................................................iv List of Tables .......................................................................................................................... vii List of Figures ........................................................................................................................ viii Nomenclature ...........................................................................................................................ix 1 Introduction ......................................................................................................................... 1 1.1 Nature of the Project ................................................................................................. 1 1.2 Conceptual Background ............................................................................................ 1 1.4 Scope ......................................................................................................................... 5 2 Literature Review ............................................................................................................... 6 2.1 Historical Background .............................................................................................. 6 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 Evolution of inventory perspective ............................................................ 6 Towards JIT system .................................................................................... 7 Raw Material Inventory management ......................................................... 7 Relation in inventory, service level and cost .............................................. 8 Inventory Management Approaches ........................................................... 9 Service level ................................................................................................ 9
2.2 Micro and Macro Analysis ..................................................................................... 10 2.3 Summary of Literature Review ............................................................................... 12 3 Problem Definition ............................................................................................................ 13 3.1 3.2 3.3 3.4 Expansion of the Problem Statement ................................................................ 13 Aim of the Study ............................................................................................... 13 Objectives of the Study ..................................................................................... 13 Methodology ..................................................................................................... 14
4 Analysis and Interpretation of data ................................................................................ 15 4.1 Process of addressing the research problem ........................................................... 15 4.2 Data Collection ....................................................................................................... 17
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4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6
Production: ................................................................................................ 17 Material Details: ....................................................................................... 18 Inventory ................................................................................................... 19 Delivery Trend .......................................................................................... 19 Scheduling................................................................................................. 20 Rolling schedules ...................................................................................... 21
4.3 Tools and Techniques ............................................................................................. 22 4.3.1 4.3.2 4.3.3 4.3.4 4.4 Cause & effect Diagram............................................................................ 22 ABC Analysis (SC & MC) ....................................................................... 23 Fill Rate..................................................................................................... 24 Min-Max model: ....................................................................................... 27
Analysis & Interpretation:................................................................................. 29 4.4.1 4.4.2 4.4.3 4.4.5 4.4.6 4.4.7 4.4.8 4.4.9 Material classification ............................................................................... 29 Comparative analysis of current and SC-ABC material classification ..... 29 Inventory level: ......................................................................................... 31 Service Rate .............................................................................................. 32 New inventory level: ................................................................................. 32 Comparative analysis of current and proposed model .............................. 33 Delivery schedule analysis ........................................................................ 35 Proposed Delivery scheduling Model ...................................................... 37
5 Solutions and Discussion of results.................................................................................. 42 5.1 Findings................................................................................................................... 42 5.1.1 5.1.2 Material classification ............................................................................... 42 Inventory level .......................................................................................... 42
5.1.3 Service level.................................................................................................. 43 5.1.4 MRP & Scheduling problem ..................................................................... 43
6 Conclusions and Recommendations ................................................................................ 44 6.1 Conclusion .............................................................................................................. 44 6.2 Recommendations for future work ......................................................................... 44 References ................................................................................................................................ 46
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Appendix-A.............................................................................................................................. 48 Appendix-B .............................................................................................................................. 52 Appendix C .............................................................................................................................. 56 Appendix D .............................................................................................................................. 57 Appendix E-1 ........................................................................................................................... 58 Appendix E-2 ........................................................................................................................... 59 Appendix E-3 ........................................................................................................................... 60
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List of Tables
Table2. 1: Inventory Management approaches .................................................................... 9 Table2. 2: Micro & Macro situation .................................................................................. 11 Table4. 1: Production status...17 Table4. 2: June-08 to October-08 Production .................................................................... 17 Table4. 3: Format for sheet metal component data collection ........................................... 18 Table4. 4: Price range of existing material classification .................................................. 19 Table4. 5: Inventory levels of existing material classification .......................................... 19 Table4. 6: Format for delivery trend analysis of supplier .................................................. 20 Table4. 7: Current Rolling schedule format ...................................................................... 22 Table4. 8: Comparison of current & SC-ABC classification ............................................ 23 Table4. 9: MC- ABC classification ................................................................................... 24 Table4. 10: Inventory Level for MC-ABC classification .................................................. 28 Table4. 11: Comparison of current & SC-ABC classification .......................................... 29 Table4. 12: On-hand inventory for current classification and current inventory .............. 30 Table4.13: On-hand inventory for SC-ABC classification and current inventory ............ 30 Table4. 14: Determined Inventory level for MC-ABC ...................................................... 33 Table4. 15: Rolling schedule of handle stay ...................................................................... 37 Table4. 16: New rolling schedule for AA category of material ........................................ 39 Table4. 17: New rolling schedule for BB category of material ......................................... 41
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List of Figures
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Figure1.1: General Min-Max model .................................................................................... 3 Figure1. 2: Classification in Multi-criteria ABC analysis ................................................... 4 Figure2. 1: Trade off between lot size and cost ................................................................... 8 Figure4.1:Current Scheduling Process showing conversion of tentative to firm flow..21 Figure4. 2: Cause & effect diagram for inappropriate inventory....................................... 22 Figure4. 3(A): Service level Vs Safety stock..................................................................... 25 Figure4. 3(B): Probability of stock-out .............................................................................. 25 Figure4. 4(A): Total cost of service level for A category of material ............................. 26 Figure4. 4(B): Total cost of service level for B category of material ............................. 26 Figure4. 4(C): Total cost of service level for C category of material ............................. 26 Figure4. 5: On-hand Inventory comparison current and SC-ABC classification .............. 31 Figure4. 6: On-hand inventory comparison ....................................................................... 34 Figure4. 7: Graphical analysis of delivery schedule impact on inventory level ................ 36
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Nomenclature
Symbol Imin Imax SS SL B H D = = = = = = Unit Pieces Pieces Pieces Percentage (%) Percentage (%) Rupees Rupees Pieces Pieces Description Minimum Inventory Maximum Inventory Safety stock Service level Probability of stock-out cost of one shortage per unit Holding cost per unit Annual Demand Demand during lead time
DL =
Abbreviation ASRS EDI IMC INP MC-ABC MRP OEM P QPTL SC-ABC SCM TCSL VMI = Automatic Storage and Retrieval System = Electronic Data Interchange = Inventory Management and Control Department = Inventory and production = Multi Criteria ABC classification = Material Requirement Planning = Original Equipment Manufacturer = Production = Quantity Per Tiller = Single Criteria ABC classification = Supply chain Management = Total Cost of Service Level = Vendor Managed Inventory
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1 Introduction
1.1 Nature of the Project The purpose of this project is to explore the practical application of logistics and supply chain management concepts in the field of inventory management. The academic project is undertaken to find out the ways to reduce the raw material inventory using multi-criteria ABC analysis, minmax inventory level model and a proper vendor scheduling process to avoid stock outs and overstocking, so that it can minimize the inventory investment and storage cost.
The project has been carried out for four month duration in one of the leading power tiller manufacturing company in India with real data. However, all the details have not been shown in the project which is confidential to company. In the first stage, the current material classification, their inventory level and impact of delivery scheduling method used in the company have been studied along with present inventory management practice for a particular category of components i.e. sheet metal components. In the second stage some new practice has been used theoretically with cost benefit analysis to improve the inventory management system. 1.2 Conceptual Background Inventory [1]: The most important task in a supply chain is the management of inventories. Inventory is a very large and costly investment that incurs at every stage of the supply chain. The Principal items which come under inventory are shown in table 1.1. Table1.1: Types of inventory at various stage of supply chain Particulars Raw material Finished components Work in process Finished goods Supplies Stocked in stores Stocked in Ware house Stocked in shop floor and production line Stocked in warehouse, distributors and retail outlets Stocked in stores and production line Stock Area
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Inventory ties up working capital and incurs holding costs; reducing profit every day due to excess stock held. But maintaining an inventory is necessary because of the following reasons: 1. It acts as a buffer stock when the raw material is received late and shop rejections are too many. 2. To keep pace with changing market condition for balancing demand and supplies for internal customers (production department). 3. To achieve economies of scale on buying. Good inventory management and control has hence become crucial to businesses as they seek to continually improve their business performance.
Inventory control: Pramod and Amarjeet [2] pointed out the main function of inventory control is to reduce investment in inventories and simultaneously minimize idle time by avoiding stock-outs and shortages. It is a matter of analytical planning and holding inventories at a specified level rather than too low inventories. The principles of inventory control are as follow: 1. The item for which annual consumption is high, order is placed frequently so that inventory level remains as low as possible. 2. Items whose annual consumption value is too high, sufficient stocks are maintained and order is placed less frequently. To control inventory, policies with defined inventory level is necessary. ABC analysis is one such tool used in the company to categorize the material based on the annual consumption and price associated with that and helps management to define the inventory level. It also defines the re order level for the items based on the lead time of the supplier.
Inventory level [3]: The level of inventory is defined as a spam of quantity to keep in store to avoid any production loss. The appropriate level of inventory is determined by the following two factors: 1. The uncertainties of demand and supply. 2. The desired level of product availability or fill rate.
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Figure 1.1 shows the inventory level which has to be determined for the formulation of inventory policies
Source: Sunil Chopra [3] Figure1.1: General Min-Max model In order to maintain the inventory level, perfect vendor scheduling with high degree of information sharing is needed, suppliers are scheduled with respect to cycle inventory and in some case allowable inventory so that inventory should not fall below the minimum inventory level and should not increase beyond maximum inventory level. ABC analysis is used to categorize the material which helps in determining the inventory level depending upon various factors.
ABC Analysis: ABC analysis is a tool used for identifying those items that will make the largest impact on the firms overall cost performance when improved inventory control procedure is implemented. A perpetual inventory system, improvements in forecasting procedure, careful analysis of the order quantity and timing decision for the A items provides great improvement in inventory cost performance than similar efforts on B and C items. Therefore, ABC analysis is often a useful first step in improving inventory performance.
Single criteria ABC analysis consists of separating the inventory items into three groupings according to their annual cost volume usage (unit cost annual Consumption).
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These groups are: A, having a high investment; B, item having an intermediate investment; C items having a low investment [4] [5]. Table1. 2: Classification percentage for ABC analysis Item category A B C % of usage value 70 85 % Next 10 to 20 % Next 5 to 10 % Inventory policy High Frequent purchase in Small lots Moderate frequent purchase in medium lots Low frequently purchase in large lots
SC-ABC analysis considers only price perspective and ignores many other non cost factors which are necessary and has a great impact on inventory management. Among them are lead-time, obsolescence, availability, substitutability and criticality. Multicriteria ABC analysis (MC-ABC) helps in separating the inventories considering the non cost factors. It classify the material into nine different categories and helps in defining the different inventory level for all nine categories or the management can club these nine categories into three categories to reduces the number of policies as show in figure 1.2.
Non-cost factors MC-ABC I A SCABC B C AA BB BB CC CC CC AA II AA III BB
Main category AA BB CC
Sub category AI, AII, BI AIII, BII, CI BIII, CII, CIII
Inventory level Low Moderate High
Vendor
Figure1. 2: Classification in Multi-criteria ABC analysis
Scheduling: The sharing of internal schedules often generated by MRP for specified items with a vendor instead of placing individual purchase orders. A vendor schedule is often divided into zones, such as a firm commitment zone in which the customer will pay for any vendor production against that schedule, an information zone which projects requirement that authorize the vendor to purchase raw material without adding labour and an information zone that gives forecasted long-term requirements but does not make a commitment.
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1.4 Scope The study undertaken would give the chance for the company to analyze the key areas of improvements for the inventory control of other categories of material & the same can be provided to its key vendors for improvement in their company. The study will provide new practices for their material classification and will also helps management to define new inventory level and inventory management approach for different categories of item. The study will provide a base for the JIT approach in future since the main focus is towards identifying the inventory reduction areas and to make beneficial from the above said study through scientifically used tools. There by the company would benefits from the recommendation.
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2 Literature Review
2.1 Historical Background 2.1.1 Evolution of inventory perspective [6] Inventory control has traditionally been an important part of operation management. In early stages, the perspective concentrated on cost control and to trade off between different costs associated with inventory. These costs include holding cost, storage expenses, overstock cost, shortage cost. With the development in technologies and mass production techniques, attempts were made for bulk purchasing to reduce the cost of purchased items which have given lot sizing decisions a greater significance.
The Japanese were early to recognize the inventory as a waste if it is excess and the term Just-in-Time (JIT) manufacturing with an aim of zero inventories refocused the attention on reducing the various cost components related to inventory holding. Although the goal of zero inventory seemed to challenge many areas of inventory management like deciding number of kanbans in a JIT system, deciding how to decompose the entire manufacturing system into different groups for smooth internal flow, interfaced with appropriate inventories.
The next development was to view inventories explicitly in term of buffers against uncertainties and lack of information. The analysis of sources for these two causes of inventory revealed a number of insights that lead to the inventory to be seen as a trade-off against service measure of system at various stages. The requirements of customer, external as well as internal were quantified in terms of service measures such as fill rate. These measures were viewed as inventory levels at various locations in supply chain.
Finally, the supply chain view of the inventories came into existence with the view of poor quality and overall system inventory. Inventory is seen as a completely unnecessary and considered as a symptom which leads to problems in production system. This shifted the view from local to global measures which emphasizes on trade-off in
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inventory level and service cost. In the context of conversion of material in factories, this view has had a big impact on the planning for inventories through choice of controlling methods, technology and layout.
2.1.2
Towards JIT system Banerjee and Kim [7] pointed out, Adopting the practice of more frequent
deliveries in small lot sizes based on a long-term, co-operative relationship between buyer and supplier must be mutually beneficial for managing inventory at supplier end as well as buyer end. For a change from existing purchasing practices to developing a long-term buyer-vendor relationship, rather than consistently seeking short-term price breaks is fundamentally important for a successful JIT system. They also pointed out that JIT is implemented successfully for a very large production volume but the approach towards the JIT may help to maintain the inventory at a very low level.
2.1.3
Raw Material Inventory management Cynthia Wallin et al [8] has pointed out that Purchased goods inventory and the
management of such inventory are non-trivial concerns for firms wishing to remain competitive and survive in the marketplace. Managing inventory for a retailer with limited number of items is comparatively easier than in automobile manufacturing unit which uses almost 3000 components to be assembled in one final product. It involves investment and expenses. A typical manufacturing firm spends, on average, 56 cents out of every dollar of revenue (i.e. 56 percent of revenue) to cover the direct cost of inventory and for typical wholesaler or retailer the percentage is even more higher. Apart from that indirect cost of managing inventory of purchased goods is quite alarming which has been estimated around 30-35 percent of the value of purchased goods. For any time period, this indicates a firm carries Rs. 20 million in purchased goods inventory and also incurs an additional Rs. 6-7 million in material handling and inventory holding costs direct and indirect costs. Therefore it has become necessary for all the firms (manufacturing, wholesale and retail) to search for more efficient and effective inventory management
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approaches to minimize not only their direct investments in purchased goods inventory but also the indirect cost incurred in managing such inventory.
2.1.4
Relation in inventory, service level and cost According to Chris Boucher [9] suppose that a business knows what the annual
requirement of an item is and that it seeks to arrange a delivery schedule with its supplier in such a way that an equal number of items will be delivered at regular intervals throughout the year depending on the inventory level of raw material. Associated with each delivery there is a delivery cost, which is assumed to be independent of the size of the delivery. Considering it as an administrative or fixed shipping cost associated with the act of making a delivery. There is also a cost to maintain inventory, which is determined by the unit carrying costthe cost of keeping one item in inventory for one year.
Figure2. 1: Trade off between lot size and cost Smaller, more frequent deliveries will drive up delivery costs but keep inventory levels low, while larger and less frequent deliveries will keep delivery costs low but push inventory levels up, driving up carrying costs. The optimum delivery schedule is the one that minimizes total inventory costs: delivery costs plus carrying costs.
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2.1.5
Inventory Management Approaches There are four basic approaches to manage inbound inventory of raw materials,
components, sub-systems and retail inventory. These four inventory management strategies can be differentiated by disentangling the question of who owns the purchased items from the question of where these items are physically held [8]. Table2.1: Inventory Management approaches Inventory management approaches Who owns inventory Where is inventory located
Benefits
On hand inventory to fulfil customer order Protection against future price increase Volume discount and reduced inbound transportation expenses No inventory obsolescence No inventory investment opportunity cost No inventory shortage, handling and tracking cases On hand inventory to fulfil customer order No inventory obsolescence No inventory investment opportunity cost On hand inventory at supplier place Protection against future price increase No inventory shortage, handling and tracking cases
Risk
Inventory investment opportunity cost Inventory shortage, handling and tracking cases Inventory obsolescence expenses Shortage cost due to understock Higher inbound transportation expenses Subject to future price increase Inventory shortage, handling and tracking cases Subject to future price increase Inventory investment opportunity cost Inventory obsolescence expenses
Inventory Speculation
Buyer
Buyer
Inventory Postponement
Supplier
Supplier
Inventory Consignment
Supplier
Buyer
Reverse Inventory consignment Buyer Supplier
2.1.6
Service level An important element of customer service and logistics management is to
maintain an appropriate level of safety stock. When insufficient safety stock is held, the firm fails to meet its customer service objective. On the other hand, a 100% in-stock policy requires too much safety stock to be practical and profitable. The level of customer service and safety stock is not an external requirement, but it should be determined based
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on the trade-off between the cost of providing the service and the contribution to revenues [10].
2.2 Micro and Macro Analysis [11] The automobile industry has undergone significant structural and other changes in the last decade or so. In view of the present globalisation, implementation of lean production and the development of modularisation have changed the relationships between automobile assemblers (OEMs) and their suppliers, especially those in the first tier. The challenges automobile manufacturers and suppliers face include improving quality, meeting cost reduction targets in all the areas including inventory and developing time to market.
According to ACMA, Indias auto component sector is becoming more mature and achieving greater heights. In India, almost every automobile manufacturer has attained the maturity stage. SCM is a best-in-class, high-performance solution which have been utilised by the leading automobile manufacturer. Apart from that, everyone has almost attained a JIT production with direct line storage and usage, inventory postponement, supplier collaboration by implementing VMI.
For maintaining a JIT production, companies have initiated strategic collaboration with the suppliers for reduction in inventory at both the ends. A system of information sharing have been established for sharing of information regarding production schedule, current inventory, store space so that the vendor itself can visualize the requirement to maintain the inventory level defined by the OEM. Vendor managed inventory (VMI), is one of the most widely used partnering initiatives for encouraging collaboration and information sharing among trading partners. VMI also offers a competitive advantage because it results in higher product availability and service level as well as lower inventory monitoring and ordering cost. The companies with low annual production volumes find difficult to implement JIT production so these companies tries to keep some inventory at both the ends i.e. at
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supplier as well as plant store. Inventory postponement is the common purchasing method used by the companies to take the advantages as discussed in table2.2. But the information sharing is the common success factor for the success, therefore EDI (Electronic Data Interchange) is the tool used by these companies to share the information generally by e-mails. Frequent delivery in low quantities is the principle adopted by the automobile manufacturer to reduce the inventory level in companies store. It reduces the holding cost and requires lesser storage area. But it increases the operational cost. Therefore inventory is defined in the companies looking all the aspects of SCM to maintain a better service level along with trade off in transportation cost. Table2.2: Micro & Macro situation Parameters Production Macro Situation JIT Production High production rate Low inventory level Inventory level High delivery frequency Micro situation Stock based production Comparatively low rate High inventory level Moderate delivery frequency Material classification Supplier Base Scheduling Purchase Information sharing Service level Storage ABC analysis Strategically collaborated Almost daily basis Inventory postponement VMI High ASRS and Manual ABC analysis General business Monthly Inventory Speculation EDI High Manual
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2.3 Summary of Literature Review Inventory ties up working capital and incurs holding cost, which reduces profit if excess stock is held. Therefore maintaining an adequate amount of inventory is very necessary. Right inventory management approaches should be selected for different types of material. Level of inventory should be different for different type of material based on various non cost factors; non-cost factors and appropriate service level. Higher the percentage of service level has to attain more the safety stock is required and higher the cost of service level. Lower the percentage of service level lower the safety stock is required. But it need strong delivery pattern from suppliers. Frequent deliveries drives up delivery costs but keep inventory levels low, while larger, less frequent deliveries will keep delivery costs low but push inventory. To adopt the practice of more frequent deliveries in small lot sizes based on a long-term, co-operative relationship between buyer and supplier is mutually beneficial for managing inventory.
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3 Problem Definition
3.1 Expansion of the Problem Statement
Higher inventory level and investment due to improper implementation of inventory control techniques. At present the company is using ABC material classification based on which inventory level is defined and suppliers are given delivery schedules without considering storage space available and availability of material. Due to the current material classification, inventory levels were set high which is incurring higher investment and storage space. Secondly, Materials which were easily available in A and B category were also purchased at a same level as compared to non-available items which tends to increase in investment. Also materials which are not easily available are stocked at a same level which causes stock-out of certain items. Thirdly, the delivery schedules for the multi supplier items are not properly carried out with reference to the delivery frequency of the supplier especially for the sheet metal components.
3.2
Aim of the Study To reduce the raw material inventory for sheet metal components for tiller
assembly at an automobile Assembly plant.
3.3
Objectives of the Study To carry out literature survey on inventory control approaches. To study and analyze the current inventory control practices and its impact on inventory level. To develop a inventory control model for reducing on- hand inventory. To suggest ways to improve inventory control practices and delivery schedules.
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3.4
Methodology Literature review of various inventory control methods have been carried out through journals, books, research papers and websites.
Current inventory control techniques and its impact have been analyzed by discussion and collection of data related to material classification, delivery scheduling and inventory levels.
Single criteria ABC (SC-ABC) analysis, Multi-criteria ABC analysis (MC-ABC) and safety stock calculation on the basis of probability of stock-out have been used to define inventory levels in the form of min-max model.
Cost benefit analysis have been carried out to compare current and proposed methods. Based on results obtained, developed model have been proposed for improvement in inventory control method and delivery scheduling.
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4 Analysis and Interpretation of data

4.1 Process of addressing the research problem The biggest concern for any manufacturing plant is the stoppage of assembly line due to non availability of components to be assembled. Even the non availability of a small component results in the production loss. Ultimately this situation results in the over stocking and additional holding cost for several other components of the same assembly group in terms of inventory and loss of profit per product as a shortage cost in terms of price. This obviously affects the production schedule, delivery schedule for the suppliers creating instability in the total supply chain.
Whenever material arrives, store department handles the incoming of raw material, getting it checked by the inspection department and at last store the material at a defined bin location in such a way that the space should be optimized. The bin locations are decided such a way that the heavy material and fast moving material is placed near assembly line so that the material handling time should be minimized. So, changes in delivery schedule affect the arrangement in store which increases operational cost and decreases the efficiency.
The present framework of assembly line is level production based on make to stock manufacturing planning and fixed daily manufacturing capacity, whenever the production fall below the plan it creates uncertainties in the production plan and requires changes in the production plan on a frequent basis, which ultimately has an impact on delivery scheduling for suppliers.
Whenever production loss occurs due to unavailability of material, delivery dates for the component other than the delayed component has to be postponed to avoid the overstock for further production plan. Therefore, a strong material planning system is required to support the production for efficient flow of material. Material planning system
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must include the latest data and full coordination from the entire department like inventory, purchase, store and production.
Today, for almost every assembly line JIT along with six sigma application is a proven technique to improve the overall efficiency, it allows materials to be procured on time in required quantity, in small lots which avoid storage cost and also avoids the error of non availability of material because as per JIT production, the material should arrive just before the assembly starts with required quantity and quality. This reduces the holding cost and inventory days. Therefore a good relation with supplier is necessary which requires regular audit and development program for better inventory in total supply chain. Proper material requirement information to be shared in advance is necessary which also helps in establishing vendor managed inventory (VMI).
But the uncertainty in delivery of material from supplier side is a common problem and creates problem in inventory management. To avoid this situation an adequate safety stock is necessary to maintain.
Keeping all above problem in mind, necessity of thorough inventory control have been experienced. Determining an adequate inventory level based on the material classification will help to understand the on-hand inventory and its impact on the assembly line. Inventory level should be such that the inventory on-hand has to be minimum and with greater product availability (service level) so that the investment can be reduced and shortages can be minimized. Service level has to be determined keeping production department as our internal customers.
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4.2 Data Collection There are two types of product manufactured in the company, Tillers and Tractors. About six different categories of material are used in the assembly of final product. They are sheet metal components, forged components, casting components, paints, rubber items and bearings. The project is carried out for the analysis of inventory levels of sheet metal components used in the tiller assembly.
4.2.1
Production: Annual production plan for the year 2008 has been collected from the purchase
department and monthly working days have been collected as shown in table 4.1. Table4. 1: Production status in numbers Tiller Annual Monthly Daily 18000 1500 60 Tractor 3000 250 10
The production figures have been collected for the five months of the year 2008 from production department. Targeted production plan as well as actual production has been collected to understand the production requirement and deviation in production
Table4. 2: Production in numbers from June-08 to October-08 Product Production Tiller Planned Achieved Planned Achieved Jun.-08 1300 1415 250 191 Jul.-08 1590 1519 250 202 Aug.-08 1585 1550 250 140 Sept.-08 1585 1480 250 150 Oct.-08 1440 1200 270 150
Tractor
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4.2.2 Material Details: All the details of sheet metal components used in the assembly of tiller have been collected from the Bill of Material (BOM), Master suppliers list and the buyers (employee of the purchase department). Details like part name, part number, quantity used per tiller, supplier name and recent purchase price have been collected as shown below with an example. Table4. 3: Format for sheet metal component data collection S. No. PART NUMBER PRESENT PART NAME VENDOR NAME PRICE IN RUPEES HANDLE STAY Arm tension pulley Plate Supplier 1 Supplier 2 Supplier 1 Supplier 2 Supplier 1 Supplier 2 Supplier 1 Supplier 2 Supplier 4 44.11 44.25 11.27 19.14 18.63 22.48 268 203 375 QTY/ UNIT
A920187
H45453
A920829
A9210924-C
Upper cover WHEEL RIM 'A' WHEEL RIM 'B'
H43188A
H43188B
Supplier 4 Supplier 1
366 1048 1484 1401
A920781
Frame engine
Supplier 2 Supplier 3
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Basis of current material classification of sheet metal components has been discussed with the employees of the company and the price range associated with the classification has been collected as shown in table 4.4. Table4. 4: Price range of existing material classification Material Category A Category B Category C Price range in Rs. No. of components 151 and above 51 to 150 Up to 50 22 16 56
4.2.3 Inventory Inventory level for different categories of material have been discussed with the employees of the company and with the use of average daily production plan, inventory level in terms of quality using Min-Max model have been calculated. Table4. 5: Inventory levels of existing material classification Material Category A B C Inventory weeks 2-4 4- 8 9 - 16 Inventory in Quantity Minimum Maximum 750 1500 3000 1500 3000 6000 Average 1125 2250 4500
4.2.4
Delivery Trend The data has been collected from the sheet metal store records. Delivery date and
quantity supplied on the particular day was collected for four months from July-08 to October-08. Number of deliveries per month and total number of components received in store has been taken for delivery interval. Delivery interval is then calculated by taking 25 working days per month and dividing it by total number of deliveries per month. Delivery interval quantity has been calculated by taking average quantity supplies in every delivery and data has been collected for all the parts and drawn in tabular form as shown in table 4.6.
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Table4. 6: Format for delivery trend analysis of supplier
Delivery Part No Part name Suppliers Interval Days

A921007-3 Handle chassis Supplier 1 Supplier 2 A921003-A A921033-A Rotary frame 540 Rotary frame 600 Supplier 1 Supplier 1 Supplier 3 A920781 H43032-B Engine Frame Cover Supplier 4 Supplier 5 25 3 5 2 7 2 12
Average supplies per month

400 1200 300 1600 400 1200 1800
Qty
400 150 60 130 200 115 900
4.2.5
Scheduling To understand the scheduling process, data have been collected from buyers
and the process of scheduling has been discussed with them. Figure 4.1 shows the pattern of scheduling and conversion of tentative to firm requirement. Method of material requirement planning while converting tentative to firm schedule has been discussed with buyers and calculation method has been collected. INP and P are the two formats for calculating material requirement depending on the availability of physical inventory stock data from IMC department. INP is used for the month, when physical inventory valuation is taken. P method is used for the month when physical inventory is not taken. Below are the formulae: a) INP: For the month physical inventory is available Tentative to firm calculation for (x+2) month = Tent schedule (x+2) - (Xth month plan Xth month production) - (opening balance - minimum inventory). b) P: For the month physical inventory is not available Tentative to firm calculation for (x+2) month = Tent schedule (x+2) - (Xth month plan Xth month production).
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Figure4. 1: Current Scheduling Process showing conversion of tentative to firm flow
4.2.6
Rolling schedules After material planning calculation, requirement is divided weekly
depending on the quantity ordered and production requirement, then the rolling schedule is sent to all the suppliers indicating three month confirm and three month tentative requirement in a weekly format as shown in table 4.7. Rolling schedule of sheet metal components for all the suppliers has been collected from buyers.
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Table4. 7: Current Rolling schedule format
4.3 Tools and Techniques 4.3.1 Cause & effect Diagram This tool has been used to understand and find out the reasons for higher and inappropriate inventory. The reasons have been analyzed on the basis of four factors viz. inventory control department, purchase department, production department and one external factors i.e. supplier as shown in figure 4.2.
Figure4. 2: Cause & effect diagram for inappropriate inventory
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Reasons have been identified for individual factors as shown in figure 4.2 and interface between all the reasons have been analyzed. It has been found that improper material classification lead to improper inventory level and which was set high, ultimately which have increased the on-hand inventory. Reasons for overstock and under-stocks were also found which was due to wrong material calculation and delivery schedule. The factors have been also identified for the inappropriate inventory but with the avoidance of factors from Purchase and IMC department, reasons of inappropriate inventory from production and suppliers will be avoided indirectly. So approaches towards material classification and inventory level have been initiated.
4.3.2
ABC Analysis (SC & MC) ABC analysis has been used for the analysis of material classification. It has been
used in two stages. In first stage, single criteria (SC) ABC classification has been used to calculate the price range and comparing with the current price range for all three categories. Annual consumption cost of components have been calculated and arranged in descending order. Cumulative of cost have been calculated and materials have been classified taking 80% of total annual cost as A category, next 15 % of annual cost as B category and remaining 5 % of annual cost as c category as shown in Appendix 1. New price range is then obtained and on-hand inventory investment for current inventory level, taking current price range and new price range have been obtained from the analysis as shown in table 4.8. Table4. 8: Comparison of current & SC-ABC classification Category A B C Price range in Rupees Current 151 and above 51 to 150 Up to 50 SC-ABC 351 and above 71 to 350 Up to 70 No of components in units Current 22 16 56 SC-ABC 15 19 60
In the second stage, Multi-criteria (MC) ABC analysis has been used for the material classification considering space utilization of components as one factor and level
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of scarcity material as another factor, but due to the time limitation it is assumed that the level of scarcity is very low i.e. the materials will be delivered by suppliers on time as per schedule and classification has been carried out as shown in Appendix B. Space utilization of the component has been calculated and classified by using XYZ analysis. Size and shape have been calculated for some of the components X, Y and Z nomination has been allotted to three components as shown in table and taken as benchmark for allocation of remaining components. X Y Z Requires larger space for storage. Requires medium space for storage. Requires lesser space for storage.
By visual sight, remaining components have been compared with the three benchmark components and allotted X, Y or Z. New material classification based on MC-ABC classification is shown in Table 4.9. Total nine categories have been formed namely AX, AY, AZ, BX, BY, BZ, CX, CY and CZ, Where AX implies that component with high unit value and requires larger storage space. So minimum inventories should be kept to reduce the inventory holding cost while keeping a certain safety stock to avoid any type of shortages. Table4. 9: MC- ABC classification Category AA BB CC Price range in Rupees 351 and above 71 to 350 Up to 70 Number of components with XYZ classification AX = 13 BX = 9 CX = 1 AY = 2 BY = 10 CY = 18 AZ = 0 BZ = 0 CZ = 41
4.3.3
Fill Rate This techniques have been used for the calculation of service level associated with
different level of safety stock in terms of product availability/ fill rate for the internal
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customer i.e. production department. It has been assumed that uncertainty in material delivery is distributed normally over the period of safety stock inventory days taking production of 60 tillers per day. An average lead time of 15 days has been considered at suppliers end. Then normal distribution value is being calculated for different safety stock days using the formula given below:
Service levels for different level of safety stock have been calculated with the corresponding value of Z from normal distribution table shown in Appendix C. Figure 4.3(A) shows the percentage of service level against different level of safety stock in a graphical form. Probability of stock out has been calculated with the below formula: Probability of stock out = 100 Service level in percentage Figure 4.3 (B) shows the Probability of stock-out against different level of safety stock in a graphical form.
Figure4. 3(A): Service level Vs Safety stock
Figure4. 3(B): Probability of stock-out
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Total costs of service level have been calculated for different service level with the formula given below. Total service level costs have been calculated by adding annual cost of shortage and annual cost of holding safety stock. Total Cost of Service Level (TCSL) = Annual shortage cost + Annual holding cost
Where = probability of stock out = (1 service level) B = Average cost of one shortage D = Annual Demand H = Annual holding (carrying) cost per unit DL = Demand during standard deviation of lead time
TCSL have been calculated for A, B and C categories of MC-ABC classification as shown in figure 4.4(A), figure 4.4(B) and figure 4.4(C) and the safety stock with minimum annual cost of service level have been taken minimum inventory level.
Figure4. 4(A): Total cost of service level for A category material
Figure4. 4(B): Total cost of service level for B category material
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Figure4. 4(C): Total cost of service level for C category material
4.3.4
Min-Max model: Min Max model has been used to study the inventory level of the components. In
the first stage, current inventory levels of material have been drawn based on the daily production, issues and raw material inventory days. Minimum and maximum quantity of raw material stock has been calculated in terms of quantity as shown in table 4.5. In the second stage, it has been used for determining inventory level for multi-criteria ABC classification based on the results obtained from cost of service level calculation for various safety stocks. Safety stock with minimum of total cost has been taken as minimum inventory level for the components the X classification material in a particular category. For example, minimum inventory (Imin) level of AX material is kept 300 units, since the total cost of service level is minimum at 300 unit of safety stock as shown in figure 4.4(A) and minimum inventory level for AY material is higher than AX to utilize the bin space effectively so that the holding cost per unit can be minimized since the bin location and its volume is same for all the components.
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Based on the average unit and accommodation of component in total volume of space available inside the bins, cycle inventory have been decided and added in minimum inventory level to calculate the maximum inventory level (Imax). Average level of inventory is calculated using formula:
Based on the figure 4.4(A), figure 4.4(B), figure 4.4(C). Inventory levels for MCABC classification have been calculated as shown in table 4.10. Table4. 10: Inventory Level for MC-ABC classification Inventory in Quantity (Numbers) Category AX AY AZ Inventory Days Minimum 5-10 8 - 12 15 20 300 480 900 Maximum 600 720 1200 Average 450 600 1050
BX BY BZ
8 12 15 - 20 20 -40
480 900 1200
720 1200 2400
600 1050 1800
CX CY CZ
20 -40 30 -60 30 -60
1200 1800 1800
2400 3600 3600
1800 2700 2700
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4.4 4.4.1
Analysis & Interpretation: Material classification Firstly, material classifications have been analyzed form the data collected shown
in table 4.4. It was found that, Price range for current ABC material classification in the company was set on assumption and experience basis. Annual consumption had not considered while classifying the materials. To check the accurate price range SC-ABC classifications have been carried out which also helped in to determine components for each category. The new price range from SC- ABC showed drastic changes. Price range for category A have been found changed to Rs. 351 from Rs. 151, price range for category B and C has been increased to Rs. 350 & Rs. 70 from 150 and 50 respectively. Changes have been obtained in the number of components for each category. Also there are about seven components which are found shifted from category A to category B and around four components are found shifted to category C from category B. Apart from that, there were some components with some category having low price and usage of 4 units per tiller, have been shifted to higher material category because of price per tiller. For example part number A920187 (Handle stay) which is used 2 units per tiller and whose unit price is Rs. 44.18 lies in C category according to current classification. But as per SC-ABC it lies under B category of material because the cost of 2 units is Rs. 88.36. Table 4.11 shows the compared price range and changes in number of components. Table4. 11: Comparison of current & SC-ABC classification Category A B C Price range in Rs Current 151 and above 51 to 150 Up to 50 SC-ABC 351 and above 71 to 350 Up to 70 No of components in units Current 22 16 56 SC-ABC 15 19 60
4.4.2
Comparative analysis of current and SC-ABC material classification Comparison of on-hand inventory value has been carried out for current inventory
level based on current material classification and SC-ABC classification. Total cost of
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material for all the categories have been calculated and multiplied by respective inventory level quantity. The calculation has carried out for Current classification and SC-ABC classification. Table 4.12 shows the on-hand inventory calculation for current classification and current inventory levels.
Table4.12: On-hand inventory for current classification and current inventory Current ABC & Current inventor y level category A B C Total price of components per tiller Rs. 14,127 Rs. 1,639 Rs. 535 On hand Inventory in Value (Rupees) Min 1,05,95,250 24,58,500 16,05,000 1,46,58,750 Max 2,11,90,500 49,17,000 32,10,000 2,93,17,500 Average 1,58,92,875 36,87,750 24,07,500 2,19,88,125
Total On hand inventory
Table 4.13 shows the on-hand inventory calculation for SC-ABC material classification and current inventory levels.
Table4. 13: On-hand inventory for SC-ABC classification and current inventory SC-ABC & Current inventor y level category A B C Total price of components per tiller Rs. 12,527 Rs. 3,000 Rs. 775 On hand Inventory in Value (Rupees) Min 93,95,250 45,00,000 23,25,000 1,62,20,250 Max 1,87,90,500 90,00,000 46,50,000 3,24,40,500 Average 1,40,92,875 67,50,000 34,87,500 2,43,30,375
A graph has been plotted for total on hand inventory for both the cases to study the changes in investment as shown in figure 4.5.
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Figure4. 5: On-hand Inventory comparison current and SC-ABC classification
11% increase has been observed in on-hand inventory investment for SC-ABC classification. Therefore, later MC-ABC has been used for further analysis and analysis of current inventory level have been also carried out with an aim to reduce the inventory and set new levels based on MC-ABC. 4.4.3 Inventory level: After analysing the delivery performance and trend of the suppliers, it has been observed that suppliers are capable of frequent deliveries with small quantities and after comparing the inventory levels with production data, it has been observed that levels have set very high which is incurring unnecessary holding cost. It has also been analysed that inventory level for the components in same categories can be varied according to the delivery trend of the supplier. The inventory for components in A category with a supplier with frequent deliveries can be set at minimal level and component with low delivery frequency can be set higher to avoid shortage and supplier convenience. Therefore, classifications have been done with the help of MC ABC which also considers space utilization.
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4.4.5 Service Rate It has been analysed from the fill rate calculation that high level of fill rate provides high level of product availability which leads to high degree of service level and which needs larger quantity to be held as a safety stock/ minimum inventory but figure 4.4(A), figure 4.4(B) and figure 4.4(C) shows that with the increase in the safety stock level, cost of shortage is decreasing but the total cost of service level is increasing because of the annual holding cost of safety Stock. Service level for current inventory level for category A has been observed between 99.8% to 99.9% which corresponds almost zero shortage but the total annual cost of holding the safety stock of 750 has been observed very high i.e. Rs. 19.5 lakhs and the total cost of service level is around Rs. 20 lakhs. Therefore, new inventory level has been defined on the basis of fill rate as shown in next section.
4.4.6
New inventory level: As discussed above safety stock with minimum service level have been taken as
minimum inventory level to reduce the total cost of holding safety stock and annual cost of shortages. But the same safety stock cannot be taken as minimum inventory level for all the components of same category. Based on the delivery performance, storage space requirement and availability per bin per component (as discussed in section 4.3.2 stage 2), safety stock is fixed more than the stock with minimum service level cost to achieve the economies of scale and to reduce the incoming material expenses, because frequent deliveries in less quantity increases the number of material arrival per component which require documentation, incoming inspection and material movement which ultimately increases the operational cost. So the minimum inventory for the material with category Y and Z have been taken higher than X category. For example, 300 is the quantity with lowest total service level cost and also the service level in percentage is around 89%, which seems to be a good level of service level for any material store for make to stock company. So this quantity has been taken for the material AX and depending on the above parameter discussed stock for material AY has been taken 480 and stock for
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material AZ has been taken 900. The new inventory level is shown in table 4.14. Also it has been observed that over all service level of sheet metal store is going around 90%.
4.4.7
Comparative analysis of current and proposed model Comparison of on-hand inventory value has been carried out for current
inventory level based on current material classification and proposed inventory level based on MC-ABC classification. Total cost of material for all the categories have been calculated and multiplied by respective inventory level quantity. The calculation has been carried out for current classification and SCABC classification. Table4.12 shows the onhand inventory calculation for current classification and current inventory levels and table 4.14 shows the on-hand inventory calculation for MC-ABC classification and new inventory levels. Table4. 14: Determined Inventory level for MC-ABC category Proposed MC-ABC and Proposed inventory level AX AY AZ BX BY BZ CX CY CZ Total price of components per tiller 11,674 853 0 1,597 1,403 0 65 393 317 On hand Inventory in Value (Rupees) Min Max Average 35,02,200 7004400 52,53,300 4,09,440 614160 5,11,800 0 0 0 7,66,560 12,62,700 0 78,000 7,07,400 5,70,600 Rs.72,96,900 1149840 1683600 0 1,56,000 14,14,800 11,41,200 Rs.1,31,64,000 9,58,200 14,73,150 0 1,17,000 10,61,100 8,55,900 Rs.1,02,30,450
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Figure4. 6: On-hand inventory comparison
Figure 4.6 shows the comparative analysis for on-hand inventory level of all three cases. I) Current ABC & Current inventory level II) SC-ABC & Current inventory level III) Proposed MC-ABC and Proposed inventory level It has been observed that with the use of case III, average on-hand inventory value have been reduced by 53.47%. With the use of MC-ABC and new inventory level, On hand inventory in the store will be between Rs. 73 lacs to Rs. 132 lacs for sheet metal components for tiller product. Whereas for the current inventory level on hand inventory level is observed between Rs. 146 lacs to Rs. 220 lacs, also with the decrease in inventory level, annual holding cost also will be decreased.
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To maintain the proposed inventory level, inventory valuation, MRP and delivery schedules becomes the important aspect. It requires frequent inventory valuation, regular MRP processing and supplier collaborations to maintain the inventories in store and at supplier end. Therefore analyses of current delivery scheduling have been carried out to align the operation.
4.4.8
Delivery schedule analysis With respect to the present inventory level and delivery schedules, analyses
have been carried out. Firstly the analyses for the impact of the delivery schedules on the stock level have been done to understand the common mistake in scheduling and to identify the areas for improvement. Secondly, a trend has been analyzed graphically.
Figure 4.6 shows an example of study for the component handle assembly (A921037). Inventory level has been studied by taking the rolling schedule for the month of November-08, opening stock for the month of November-08 and taking requirement of 60 units per day. It is assumed that the material is received on every Monday of the weeks scheduled. Analysis has been carried out graphically. From figure 4.3 it have been found out that, with the current delivery schedules inventory level are not maintained between minimum and maximum inventory level.
P.T.O
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- 08
- 08
Number of units
Time in weeks Figure4. 7: Graphical analysis of delivery schedule impact on inventory level Sometimes it falls below Imin and sometime above Imax. Also after two months it will increases from Imax which cannot be reduced even for next six weeks i.e. after 2nd week of December-08 because the quantities have already been declared confirmed. Also from the tentative schedule of fourth week, quantities cannot be reduced less than 10%. So it seems very difficult to maintain the inventory levels based on current MRP and delivery scheduling.
Table 4.15 shows the rolling schedule for handle stay for the month of October08. It have been observed that the delivery time given to both the suppliers are same and in equal quantity. 1000 quantities are scheduled in 1st week of November-08 to supplier 1 as well as to supplier 2 each, whereas the 2nd week is not scheduled. Similarly the 3rd and 4th weeks are scheduled.
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Table4. 15: Rolling schedule of handle stay for the month of oct-08
As a result, there will be much more inventory in the week 1st and 3rd and the inventory drop down in the 2nd and 4th week. If the supplier 2 is scheduled in 2nd and 4th week, a level can be maintained properly. It can also be helpful in better space utilization. It will require lesser defined space for the particular material. Keeping above two trends in mind, need for improvement in delivery scheduling has been identified with lesser duration of firm scheduling and with defined dates and quantity.
4.4.9
Proposed Delivery scheduling Model From figure 4.1 it has been observed that, it becomes very difficult to make the
changes in the requirement of upcoming months of the rolling schedule due to already confirmed quantity. Whenever production falls below the target or there are over-stocks of components due to the non availability of other components it becomes necessary to reduce the scheduled quantity for the upcoming weeks, which is not possible with the present scheduling process. The changes are possible only for the 3rd month in the next rolling schedule. material. It is quite obvious that, for implementing proposed classification with new inventory level, accuracy in requirement planning and higher inventory turns have to Also the scheduling format was similar for all the categories of
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maintain which is very difficult with present scheduling. Therefore changes in delivery scheduling have been done for higher inventory turnover and with more flexibility.
Firstly, the nine categories have been clubbed and new category name have been given for scheduling purpose. The material category with low inventory level have been given name AA and the material category with low inventory level have been given name CC and remaining material have been categorised as BB as shown.
Main category AA BB CC
Sub category AI, AII, BI AIII, BII, CI BIII, CII, CIII
Inventory level Low Moderate High
Rolling schedule for AA category has been formulated keeping in mind that inventory level for these components is low, for which the cycle inventory also have been defined low. So a frequent delivery scheduling with fortnight rolling will help in maintaining the inventory level.
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Table4. 16: New rolling schedule for AA category of material
Table 4.16 shows the rolling procedure for AA category material with colour coding. The scheduling has been proposed weekly basis instead of monthly basis. Firm scheduling will be carried out for six weeks out of which first two weeks will be scheduled date wise and tentative scheduling will be done for six weeks and forecasted requirement will be given to supplier for next three month. The calculation for the requirement while changing from tentative to firm scheduling has been described below. Bi monthly rolling of schedules STEP 1 STEP 2 (6 weeks Production plan - present stock )+ safety stock = Requirement short fall Requirement shortfall - 4 weeks confirmed schedule = quantity to be confirmed for two weeks Reduction of quantity from confirmed schedule if it is more. STEP 3 (Maximum reduction of 5%. Remaining in next tentative plan has to be adjusted) Assigning quantity week wise based on delivery frequency STEP 4 (Scheduled as per general format(days) for every two weeks Delivery qty should not be increased from max inventory level)
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For all the components, based on the delivery frequency of supplier, a general date wise monthly delivery schedule will be prepared to use for scheduling which will reduce the time of making the schedule.
Similarly, scheduling for category BB has been proposed and scheduling for category CC will be best suited with current scheduling procedure. Table 4.17 shows the rolling procedure for BB category material. The scheduling has been proposed monthly basis. Firm scheduling will be done for two month (weekly) out of which first month scheduled date wise and tentative requirement will be given for next two months and forecasted requirement will be given to supplier for next three month. The calculation for the requirement while changing from tentative to firm scheduling has been described below. Monthly rolling of schedules STEP 1 STEP 2 (2 months Production plan - present stock ) + safety stock = Requirement short fall Requirement shortfall - One month confirmed schedule = quantity to be confirmed for one month Reduction of quantity from confirmed schedule if it is more. STEP 3 (Maximum reduction of 5%. Remaining in next tentative plan has to be adjusted) Assigning quantity week wise based on delivery frequency STEP 4 (Scheduled as per general format(days) for every two weeks Delivery qty should not be increased from max inventory level)
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Table4. 17: New rolling schedule for BB category of material
Scheduling for category CC has been chosen same as current schedule. Since almost all the components in CC categories are with average inventory level of 2700 units which is almost 1.5 months of requirement and also same in size and can be purchase and store in bulk quantity. A rolling schedule of monthly with three month requirement is best suited.
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5 Solutions and Discussion of results

5.1 Findings A summary of finding from the analysis of the proposed model is given below
5.1.1
Material classification After studying the current material classification, it has been found that materials are classified in terms of ABC but is not being implemented properly in the company. This problem is solved by using single criteria ABC analysis but result found was not satisfactory. Changes in number of materials and price range have been observed. But with the use of SC-ABC the purchasing value of material became higher based on the current inventory. An increase of 11% has been observed out in on-hand inventory investment. Later multi-criteria ABC analysis have given clear picture of material characteristic in terms of value and space requirement and which also helped in making changes in scheduling process for the maintenance of inventory level.
5.1.2
Inventory level Delivery frequency of the suppliers is an area which has not been considered by the company to define the inventory level. Even the supplier have been supplied the material frequently current inventory levels were set very high. The inventory level in the company was set for the A, B and C category of material and materials were purchased. Based on the minimum inventory level, annual cost of holding minimum inventory has been found very high, later which have been reduced by fixing new level considering all the SCM aspects. MC-ABC Analysis have been found as an effective tool to define new classification for setting new inventory levels which ultimately reduced the inventory level and annual holding cost. The result showed 53.47% reduction of average on-hand inventory level.
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5.1.3 Service level Presently the company was maintaining the service level of more than 99% for which the company was maintaining very high level of inventory and for which cost of holding safety stock was very high. This problem has been solved by calculating the cost of service level for all categories of material separately, which also helped in defining the new inventory levels for every material group of MCABC. The calculation of service level indicated an over-all service level of 89% and the total cost of service level is much lesser than current. Also maintaining a service level of 89% will not cause any effect on the production schedule and will save around 47% to 54 % of on-hand inventory value and holding cost.
5.1.4
MRP & Scheduling problem It has been found that MRP and scheduling was done for all the category of material in a same way and it was very difficult to make changes in schedule. Also it has been found out that it will be difficult to maintain the new inventory levels based on current MRP and delivery scheduling. New delivery scheduling model have been designed to avoid the problem. The proposed scheduling model will help in making changes at earlier stages, as compared to current model. New MRP logic will help in understanding the requirement clearly and accordingly will be helpful in scheduling for new inventory levels. For new scheduling and MRP, time to time physical inventory and daily theoretical inventory stock maintenance has become an important parameter.
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6 Conclusions and Recommendations

6.1 Conclusion Inventory control model has been developed for the reduction of raw material inventory. The inventory model included the combination of material classification, service level, min-max model and a delivery scheduling method. An attempt have been made to reduce the inventory level of those material which are easily available from the suppliers end and also which carries high value and requires larger space to store. Multicriteria ABC analysis has been used to categorize the material based on price and space requirement, which later with the help of service level calculation helped in defining the reduced inventory level in Min-Max inventory model format. New inventory levels have been fixed such that the supplier must be comfortable in delivering the material and there must be a minimum service level to be provided to production department.
A new scheduling format has been proposed with MRP calculation technique for the developed inventory control model. The new model will leads to increased operational work for IMC and purchase department but will be efficient for the inventory management with increased inventory turnover.
Multi criteria ABC analysis helps in determining the inventory level based on different factors. Average inventory investment is reduced phenomenally which can be invested in other areas of business. Average on hand inventory is reduced by 53.47% with an overall service level of 89%.
6.2 Recommendations for future work The project has been carried out for the raw material reduction based on sheet metal components used in the tiller assembly. The proposed model can be used for other categories of materials also. This will help in reducing on-hand inventory to a great
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extent. For further improvement and more controlled inventory control following recommendation can be applied in future Multi-criteria ABC classification can be used by considering availability of material as a third non-cost factor and classifying the material in 27 categories. This will help in better understanding of components and defining their inventory level. Production criticality should also be taken into consideration which has been assumed equally in this project work. Inventory level should be calculated for every individual product separately and cycle inventory should be decided on the basis of delivery frequency and space available inside the bin system. EOQ model can be used to define the cycle inventory. New scheduling should be used with VMI through Strategic collaboration with suppliers which will help in smooth operation.
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References
[1] R. P. Mohanty & S. G. Deshmukh, Supply Chain Management: Theories and Practices, Biztantra, 2005, Page 75-79. [2] Pramod Gandhi & Amarjeet Basur, Application of ABC analysis in Medical store of E.S.I.C. Delhi http://medind.nic.in/haa/t00/i1/haat00i1p90g.pdf, 27-11-2008, 12.05 hrs. [3] Sunil Chopra & Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Pearson education, fifth edition, 2003, page 137- 152. [4] Thomas E. Vollmann & William L. Berry & D. Clay Whybark & F. Robert Jacobs, Manufacturing Planning and Control for Supply Chain Management, Tata McGraw-Hill, Fifth Edition, 2005, Page 223 248, 389 400.. [5] L. C. Jhamb, Materials Management, Symbiosis centre for distance learning, 2007 [6] G. Raghuram & N. Rangaraj, Logistics and Supply Chain Management: cases and concepts, Macmillan India ltd, 2006, Page 129-136. [7] Avijit Banerjee & Seung-Lae Kim, An integrated JIT inventory model, International Journal of Operations & Production Management, Year:1995, Volume: 15, Issue: 9, Page: 237 244 [8] Cynthia Wallin & M. Johnny Rungtusanatham & Elliot Rabinovich, What is the right inventory management approach for a purchased item?, International Journal of Operations & Production Management, Year: 2006,Volume: 26, Issue: 1, Page: 50 68. [9] Chris Boucher, A simple inventory control model
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Tuominen"Adjusting Safety Stock Requirements with an AHP-based Risk Analysis"
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[11] Anonymous, A Background note on Supply Chain management In Automotive Industry, Auto SCM India 2006, Chennai.
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calculation,http://www.inventorymanagementreview.org/2006/03/postponent_cal c.html" 25-10-2008,17.20 hrs
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Appendix-A
Single-Criteria ABC material classification (SC-ABC)
ITEM CODE
ITEM NAME
PRICE ANNUAL IN QPTL CONSUMPTION RUPEES (QTY) A category material 1442.82 1395.58 1395.58 1275 1185 1155 933.47 660.37 562.18 509.55 436.9 417.97 416.15 375 366 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000
ANNUAL VALUE IN Rs. 25970760 25120440 25120440 22950000 21330000 20790000 16802460 11886660 10119240 9171900 7864200 7523460 7490700 6750000 6588000
CUMULATIVE
A920781-2 A921033-A A921033-C A920492-1 A920491-2 C0060100520 A921007-3 V1010600304 A921160-1 A921037 H43188A V0010101200 H43188B V0011000420 MM4083092
ENGINE FRAME ROT FRAME COVER 540mm ROTARY FRAME ASSY - 600MM ROTARY SHAFT ASSY 60cm ROTARY SHAFT ASSEMBLY ASSY. ROTARY 340MM HANDLE CHASSIS TANK FUEL VWH120/130DI HANDLE LEFT HANDLE ASSY RIGHT COVER FLYWHEEL AIR CLEANER CYCLONIC OIL PAN - 2.5MM THK WHEEL RIM RIM 'A' WHEEL RIM RIM 'B' COVER CONDENSER COVER SUPPORT COVER HEAD LAMP TAIL WHEEL FORK OUTER TUBE FORK TAIL WHEEL COVER CHAIN
2,59,70,760 5,10,91,200 7,62,11,640 9,91,61,640 12,04,91,640 14,12,81,640 15,80,84,100 16,99,70,760 18,00,90,000 18,92,61,900 19,71,26,100 20,46,49,560 21,21,40,260 21,88,90,260 22,54,78,260
B category material K887301-4 V0010101121 V1010900113 VA-6009-1 VA-6003-2 C1050500330 335.72 303.39 257.85 182.82 182.58 175 163.35 1 1 1 1 1 1 1 18000 18000 18000 18000 18000 18000 18000 6042960 5461020 4641300 3290760 3286440 3150000 2940300 23,15,21,220 23,69,82,240 24,16,23,540 24,49,14,300 24,82,00,740 25,13,50,740 25,42,91,040
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CASE H43478-2 H43478-8 H43016-1 A920782-2 H45280A-1 C1050500532 A920369 C1050500430 C0020200330 A920187 H45067 H43015-1 COVER SIDE LEFT COVER SIDE RIGHT CLUTCH PLATE DRIVEN - B STAND - NEW TYPE SUBMISSION LEVER OUTER TUBE TAIL WHEEL V BELT COVER SHAFT ASSY TAIL WHEEL WHEEL EXCHANGER HANDLE STAY COVER SIDE PLATE CL DREVEN A COVER HANDLE CHASSIS HANDLE ASSY. TAIL WHEEL COVER INSPECTION OUTER TUBE CAP ROD SUBMISSION ARM TENSION PULLEY COVER GOVERNOR GRILL RIGHT LEVER BRAKE COVER STICKERS TILLER LEVER SUBMISSION PRESSURE PLATE ROTARY CASE LID COVER UPPER SIDE BRACKET, COOLANT TANK 138.64 138.64 34.31 130.8 130.75 130 127.8 120 104 44.18 77.5 75.8 1 1 4 1 1 1 1 1 1 2 1 1 18000 18000 72000 18000 18000 18000 18000 18000 18000 36000 18000 18000 2495520 2495520 2470320 2354400 2353500 2340000 2300400 2160000 1872000 1590480 1395000 1364400 25,67,86,560 25,92,82,080 26,17,52,400 26,41,06,800 26,64,60,300 26,88,00,300 27,11,00,700 27,32,60,700 27,51,32,700 27,67,23,180 27,81,18,180 27,94,82,580
C category Material A920169 C1050500831 H45155 VA-6004-1 H45271 H45453-1 K885231-4 K887305-1 H43342 H43032-B C0060700130 H45278 A920829 H45345 K881375-0 V1010901431 65 65 59.3 50.65 47.5 16.1 29.69 29.12 28.61 24 23.3 22.35 20.5 19.25 19 16.5 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 18000 18000 18000 18000 18000 36000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 1170000 1170000 1067400 911700 855000 579600 534420 524160 514980 432000 419400 402300 369000 346500 342000 297000 28,06,52,580 28,18,22,580 28,28,89,980 28,38,01,680 28,46,56,680 28,52,36,280 28,57,70,700 28,62,94,860 28,68,09,840 28,72,41,840 28,76,61,240 28,80,63,540 28,84,32,540 28,87,79,040 28,91,21,040 28,94,18,040
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H45237 C1040100120 C0060100830 A920192 H56552 A920814 C0030100341 C0030100540 A922547-1 H42927 A920114 A920158 M300-10 C0040100131 MM409181 MD000312 MM430703 H43230 M302-14 MD0212041 MM409686 M186-30 A922439 MM408221 MF665511 MM409169 M186-24 H43039 H42762 H45084 H45297-1 H45298-1 MF450010 H42698
GUIDE PLATE LABEL HANDLE PRESSURE 340MM ROTARY PLATE SPACER SPACER BKT TOP - BELT COVER BKT BOTTOM BELT COVER COVER CONE WASHER HANDLE WT SET PLATE BRAKE ROD PLAIN WASHER PLATE NAME ENG & CHASSIS ROD TIE GASKET CLAMP 'A' WASHER PLAIN WASHER WOOD CAP SEALING LEVER STOP LOCK WASHER CONNECTER PLATE FRONT PLUG EXPANSION -4 CAP SEALING LOCK WASHER SPACER STOPPER STOPPER SIGN PLATE SIGN PLATE WASHER PLAIN 18 WASHER
14.3 6.5 12.85 12.84 3.13 6.25 11.91 11.91 11.85 5.54 2 7 0.38 6.4 6.28 1.53 2.69 4.38 3.9 1.84 3.29 3.22 3.12 3 2.99 2.69 2.35 2.16 2.08 2.04 1.7 1.7 1.68 1.56
1 2 1 1 4 2 1 1 1 2 4 1 17 1 1 4 2 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1
18000 36000 18000 18000 72000 36000 18000 18000 18000 36000 72000 18000 306000 18000 18000 72000 36000 18000 18000 36000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000
257400 234000 231300 231120 225360 225000 214380 214380 213300 199440 144000 126000 116280 115200 113040 110160 96840 78840 70200 66240 59220 57960 56160 54000 53820 48420 42300 38880 37440 36720 30600 30600 30240 28080
28,96,75,440 28,99,09,440 29,01,40,740 29,03,71,860 29,05,97,220 29,08,22,220 29,10,36,600 29,12,50,980 29,14,64,280 29,16,63,720 29,18,07,720 29,19,33,720 29,20,50,000 29,21,65,200 29,22,78,240 29,23,88,400 29,24,85,240 29,25,64,080 29,26,34,280 29,27,00,520 29,27,59,740 29,28,17,700 29,28,73,860 29,29,27,860 29,29,81,680 29,30,30,100 29,30,72,400 29,31,11,280 29,31,48,720 29,31,85,440 29,32,16,040 29,32,46,640 29,32,76,880 29,33,04,960
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H45159 H45423 M300-06 MD0004251 H45136 H45134 MD001521 M300-08 MF660031
SPACER LOCK WASHER PLAIN WASHER WASHER STOPPER WASHER WASHER PLAIN WASHER GASKET
1.38 1.02 0.2 0.9 0.85 0.72 0.66 0.28 0.46
1 1 5 1 1 1 1 2 1
18000 18000 90000 18000 18000 18000 18000 36000 18000
24840 18360 18000 16200 15300 12960 11880 10080 8280
29,33,29,800 29,33,48,160 29,33,66,160 29,33,82,360 29,33,97,660 29,34,10,620 29,34,22,500 29,34,32,580 29,34,40,860
Calculation: Total Rs. 29,34,40,860 Result Category A B C Cumulative Annual value in Rupees 0 - 22,54,78,260 22,54,78,261- 27,94,82,580 27,94,82,581- 29,34,40,860 75% Rs. 22,00,80,645 95% Rs. 27,87,68,817
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Appendix-B
Multi-Criteria ABC material classification (MC-ABC)
ITEM CODE ITEM NAME PRICE IN RUPEES 1442.82 1395.58 1395.58 1275 1185 1155 933.47 660.37 562.18 509.55 417.97 375 366 436.9 416.15 335.72 257.85 182.82 175 163.35 138.64 138.64 127.8 77.5 QPTL ANNUAL CONSUMPTION (QTY) 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 ANNUAL VALUE IN Rs. 25970760 25120440 25120440 22950000 21330000 20790000 16802460 11886660 10119240 9171900 7523460 6750000 6588000 7864200 7490700 6042960 4641300 3290760 3150000 2940300 2495520 2495520 2300400 1395000 CUMULATIVE XYZ
A920781-2 A921033-A A921033-C A920492-1 A920491-2 C0060100520 A921007-3 V1010600304 A921160-1 A921037 V0010101200 V0011000420 MM4083092 H43188A H43188B K887301-4 V1010900113 VA-6009-1 C1050500330
ENGINE FRAME ROT FRAME COVER 540mm ROTARY FRAME ASSY - 600MM ROTARY SHAFT ASSY 60cm ROTARY SHAFT ASSEMBLY ASSY. ROTARY 340MM HANDLE CHASSIS TANK FUEL VWH120/130DI HANDLE LEFT HANDLE ASSY RIGHT AIR CLEANER CYCLONIC WHEEL RIM RIM 'A' WHEEL RIM RIM 'B' COVER FLYWHEEL OIL PAN - 2.5MM THK COVER CONDENSER COVER HEAD LAMP TAIL WHEEL FORK FORK TAIL WHEEL COVER CHAIN CASE
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
2,59,70,760 5,10,91,200 7,62,11,640 9,91,61,640 12,04,91,640 14,12,81,640 15,80,84,100 16,99,70,760 18,00,90,000 18,92,61,900 19,67,85,360 20,35,35,360 21,01,23,360 21,79,87,560 22,54,78,260 23,15,21,220 23,61,62,520 23,94,53,280 24,26,03,280 24,55,43,580 24,80,39,100 25,05,34,620 25,28,35,020 25,42,30,020
AX AX AX AX AX AX AX AX AX AX AX AX AX
AY AY BX BX BX BX BX BX BX BX BX
H43478-2 H43478-8 A920369 H45067
COVER SIDE LEFT COVER SIDE RIGHT V BELT COVER COVER SIDE
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V0010101121 VA-6003-2 H43016-1 A920782-2 H45280A-1 C1050500532 C1050500430 C0020200330 A920187 H43015-1
COVER SUPPORT OUTER TUBE CLUTCH PLATE DRIVEN - B STAND - NEW TYPE SUBMISSION LEVER OUTER TUBE - TAIL WHEEL SHAFT ASSY - TAIL WHEEL WHEEL EXCHANGER HANDLE STAY PLATE CL DREVEN A COVER HANDLE CHASSIS HANDLE ASSY. TAIL WHEEL COVER INSPECTION ROD SUBMISSION ARM TENSION PULLEY COVER GOVERNOR LEVER BRAKE LEVER SUBMISSION PRESSURE PLATE COVER UPPER SIDE BRACKET, COOLANT TANK BKT TOP - BELT COVER BKT BOTTOM - BELT COVER COVER BRAKE ROD PLATE NAME ENG & CHASSIS SIGN PLATE SIGN PLATE FILTER ASSY OIL
303.39 182.58 34.31 130.8 130.75 130 120 104 44.18 75.8
1 1 4 1 1 1 1 1 2 1
18000 18000 72000 18000 18000 18000 18000 18000 36000 18000
5461020 3286440 2470320 2354400 2353500 2340000 2160000 1872000 1590480 1364400
25,96,91,040 26,29,77,480 26,54,47,800 26,78,02,200 27,01,55,700 27,24,95,700 27,46,55,700 27,65,27,700 27,81,18,180 27,94,82,580
BY BY BY BY BY BY BY BY BY BY
A920169
65
18000
1170000
28,06,52,580
CX
C1050500831 H45155 H45271 H45453-1 K885231-4 H43342 H45278 A920829 K881375-0 V1010901431 C0030100341 C0030100540 A922547-1 A920158 C0040100131 H45297-1 H45298-1 MM409365
65 59.3 47.5 16.1 29.69 28.61 22.35 20.5 19 16.5 11.91 11.91 11.85 7 6.4 1.7 1.7
1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1
18000 18000 18000 36000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000
1170000 1067400 855000 579600 534420 514980 402300 369000 342000 297000 214380 214380 213300 126000 115200 30600 30600 0
28,18,22,580 28,28,89,980 28,37,44,980 28,43,24,580 28,48,59,000 28,53,73,980 28,57,76,280 28,61,45,280 28,64,87,280 28,67,84,280 28,69,98,660 28,72,13,040 28,74,26,340 28,75,52,340 28,76,67,540 28,76,98,140 28,77,28,740 28,77,28,740
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
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VA-6004-1 K887305-1 H43032-B C0060700130 H45345 H45237 C1040100120 C0060100830 A920192 H56552 A920814 H42927 A920114 M300-10 MM409181 MD000312 MM430703 H43230 M302-14 MD0212041 MM409686 M186-30 MM408221 MF665511 MM409169 M186-24 H43039 H42762 H45084 MF450010 H42698 H45159 H45423 M300-06
OUTER TUBE CAP GRILL RIGHT COVER STICKERS - TILLER ROTARY CASE LID GUIDE PLATE LABEL HANDLE PRESSURE 340MM ROTARY PLATE SPACER SPACER CONE WASHER HANDLE WT SET PLATE PLAIN WASHER ROD TIE GASKET CLAMP 'A' WASHER PLAIN WASHER WOOD CAP SEALING LEVER STOP LOCK WASHER PLATE FRONT PLUG EXPANSION - 4 CAP SEALING LOCK WASHER SPACER STOPPER STOPPER WASHER PLAIN - 18 WASHER SPACER LOCK WASHER PLAIN WASHER
50.65 29.12 24 23.3 19.25 14.3 6.5 12.85 12.84 3.13 6.25 5.54 2 0.38 6.28 1.53 2.69 4.38 3.9 1.84 3.29 3.22 3 2.99 2.69 2.35 2.16 2.08 2.04 1.68 1.56 1.38 1.02 0.2
1 1 1 1 1 1 2 1 1 4 2 2 4 17 1 4 2 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 5
18000 18000 18000 18000 18000 18000 36000 18000 18000 72000 36000 36000 72000 306000 18000 72000 36000 18000 18000 36000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 90000
911700 524160 432000 419400 346500 257400 234000 231300 231120 225360 225000 199440 144000 116280 113040 110160 96840 78840 70200 66240 59220 57960 54000 53820 48420 42300 38880 37440 36720 30240 28080 24840 18360 18000
28,86,40,440 28,91,64,600 28,95,96,600 29,00,16,000 29,03,62,500 29,06,19,900 29,08,53,900 29,10,85,200 29,13,16,320 29,15,41,680 29,17,66,680 29,19,66,120 29,21,10,120 29,22,26,400 29,23,39,440 29,24,49,600 29,25,46,440 29,26,25,280 29,26,95,480 29,27,61,720 29,28,20,940 29,28,78,900 29,29,32,900 29,29,86,720 29,30,35,140 29,30,77,440 29,31,16,320 29,31,53,760 29,31,90,480 29,32,20,720 29,32,48,800 29,32,73,640 29,32,92,000 29,33,10,000
CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ CZ
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MD0004251 H45136 H45134 MD001521 M300-08 MF660031 A922439
WASHER STOPPER WASHER WASHER PLAIN WASHER GASKET CONNECTER
0.9 0.85 0.72 0.66 0.28 0.46 3.12
1 1 1 1 2 1 1
18000 18000 18000 18000 36000 18000 18000
16200 15300 12960 11880 10080 8280 56160
29,33,26,200 29,33,41,500 29,33,54,460 29,33,66,340 29,33,76,420 29,33,84,700 29,34,40,860
CZ CZ CZ CZ CZ CZ CZ
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Appendix C
Normal Distribution Table (Z-value)
.00 .0 .1 .2 .3 4. .5 .6 .7 .8 .9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 .5000 .5398 .5793 .6179 .6554 .6915 7257 .7580 .7881 .8159 .8413 .8643 .8849 .9032 .9192 .9332 .9452 .9554 .9641 .9713 .9772 .9821 .9861 .9893 .9918 .9938 .9953 .9965 .9974 .9981 .9987 .9990 .9.993 .9995 .9997 .01 .5040 .5438 .5832 .6217 .6591 .6950 .7291 .7611 .7910 .8186 .8438 .8665 .8869 .9049 .9207 .9345 .9463 .9564 .9649 .9719 .9778 .9826 .9864 .9896 .9920 .9940 .9955 .9966 .9975 .9982 .9987 .9991 .9993 .9995 .9997 .02 .5080 .5478 .5871 .6255 .6628 .6985 .7324 .7642 .7939 .8212 .8461 .8686 .8888 .9066 .9222 .9357 .9474 .9573 .9656 .9726 .9783 .9830 .9868 .9898 .9922 .9941 .9956 .9967 .9976 .9982 .9987 .9991 .9994 .9995 .9997 .03 .5120 .5517 .5910 .6293 .6664 .7019 .7357 .7673 .7967 .8238 .8485 .8708 .8907 .9082 .9236 .9370 .9484 .9582 .9664 .9732 .9788 .9834 .9871 .9901 .9925 .9943 .9957 .9968 .9977 .9983 .9988 .9991 .9994 .9996 .9997 .04 .5160 .5557 .5948 .6331 .6700 .7054 .7389 .7704 .7995 .8264 .8508 .8729 .8925 .9099 .9215 .9382 .9495 .9591 .9671 .9738 .9793 .9834 .9875 .9904 .9927 .9945 .9959 .9969 .9977 .9984 .9988 .9992 .9994 .9996 .9997 .05 .5199 .5596 .5987 .6368 .6737 .7088 .7422 .7734 .8023 .8289 .8531 .8749 .8944 .9115 .9265 .9394 .9505 .9599 .9678 .9744 .9798 .9838 .9878 .9906 .9929 .9946 .9960 .9970 .9978 .9984 .9989 .9992 .9994 .9996 .9997 .06 .5239 .5636 .6026 .6406 .6772 .7123 .7454 .7764 .8015 .8315 .8554 .8770 .8962 .9131 .9279 .9406 .9515 .9608 .9686 .9750 .9803 .9842 .9881 .9909 .9931 .9948 .9961 .9971 .9979 .9985 .9989 .9992 .9994 .9996 .9997 .07 .5279 .5675 .6064 .6443 .6808 .7157 .7486 .7794 .8078 .8340 .8577 .8790 .8980 .9147 .9292 .9418 .9525 .9616 .9693 .9756 .9808 .9846 .9884 .9911 .9932 .9949 .9962 .9972 .9979 .9985 .9989 .9992 .9995 .9996 .9997 .08 .5319 .5714 .6103 .6480 .6844 .7090 .7517 .7823 .8106 .8365 .8599 .8810 .8997 .9162 .9306 .9429 .9535 .9625 .9699 .9761 .9812 .9850 .9887 .9913 .9934 .9951 .9963 .9973 .9980 .9986, .9990 .9993 .9995 .9996 .9997 .09 .5359 .5753 .6141 .6517 .6879 .7224 .7549 .7852 .8133 .8389 .8621 .8830 .9015 .9177 .9319 .9441 .9545 .9633 .9706 .9767 .9817 .9857 .9890 .9916 .9936 .9952 .9964 .9974 .9981 .9986 .9990 .9993 .9995 .9997 .9998
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Appendix D
Calculation of probability of stock out Formula Z= Safety Stock standard deviation*SQRT(Lead Time)
Safety stock (SS) Standard Deviation during lead time Lead time in Days (LT)
60 65 15
120 65 15 3.87
180 65 15 3.87
240 65 15 3.87
300 65 15 3.87
360 65 15 3.87
420 65 15 3.87
480 65 15 3.87
540 65 15 3.87
600 65 15 3.87
660 65 15 3.87
720 65 15 3.87
800 65 15 3.87
SQRT Lead Time 3.87
standard deviation X SQRT(Lead 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 251.74 Time) Z 0.23 0.47 0.71 0.95 1.19 1.43 1.66 1.90 2.14 2.38 2.62 2.86 3.17
Corresponding Z 0.5948 0.6844 0.7611 0.8289 0.8849 0.9236 0.9525 0.9719 0.9834 0.9913 0.9956 0.9979 0.9992 value (from Z Table) Service level in Percentage 59.48 68.44 76.11 82.89 88.49 92.36 95.25 97.19 98.34 99.13 99.56 99.79 99.92
Probability of stock out = 40.52 31.56 23.89 17.11 11.51 7.64 100 - service level %
4.75
2.81
1.66
0.87
0.44
0.21
0.08
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Appendix E-1
TCSL calculation for A category of material
Safety stock Total Value of A components for one tiller Holding cost @ 20% of value cost of holding safety stock per annum (A) Probability of stock out ( = 1 - SL) shortage cost per tiller ( profit of one tiller) Annual demand from prod dept demand during lead time deviation (1.5 days) Annual cost of shortage (B) Total Annual cost in Rupees (A+B)
60
120
180
240
300
360
420
480
540
600
660
12545
12545
12545
12545
12545
12545
12545
12545
12545
12545
12545
2509
2509
2509
2509
2509
2509
2509
2509
2509
2509
2509
150540
301080
451620
602160
752700
903240
1053780
1204320
1354860
1505400
1655940
0.4052
0.3156
0.2389
0.1711
0.1151
0.0764
0.0475
0.0281
0.0166
0.0087
0.0044
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
90
90
90
90
90
90
90
90
90
90
90
1215600 13,66,140
946800 12,47,880
716700 11,68,320
513300 11,15,460
345300 10,98,000
229200 11,32,440
142500 11,96,280
84300 12,88,620
49800 14,04,660
26100 15,31,500
13200 16,69,140
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Appendix E-2
TCSL calculation for B category of material
Safety stock Total Value of A components for one tiller Holding cost @ 20% of value cost of holding safety stock per annum (A) Probability of stock out ( = 1 - SL) shortage cost per tiller ( profit of one tiller) Annual demand from prod dept demand during lead time deviation (1.5 days) Annual cost of shortage (B) Total Annual cost in Rupees (A+B)
60
120
180
240
300
360
420
480
540
600
660
3000
3000
3000
3000
3000
3000
3000
3000
3000
3000
3000
600
600
600
600
600
600
600
600
600
600
600
36000
72000
108000
144000
180000
216000
252000
288000
324000
360000
396000
0.4052
0.3156
0.2389
0.1711
0.1151
0.0764
0.0475
0.0281
0.0166
0.0087
0.0044
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
90
90
90
90
90
90
90
90
90
90
90
1215600
946800
716700
513300
345300
229200
142500
84300
49800
26100
13200
12,51,600
10,18,800
8,24,700
6,57,300
5,25,300
4,45,200
3,94,500
3,72,300
3,73,800
3,86,100
4,09,200
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Appendix E-3
TCSL calculation for C category of material
Safety stock Total Value of A components for one tiller Holding cost @ 20% of value cost of holding safety stock per annum (A) Probability of stock out ( = 1 - SL) shortage cost per tiller ( profit of one tiller) Annual demand from prod dept demand during lead time deviation (1.5 days) Annual cost of shortage (B) Total Annual cost in Rupees (A+B) 535
60
120
180
240
300
360
420
480
540
600
660
535
535
535
535
535
535
535
535
535
535
107
107
107
107
107
107
107
107
107
107
107
6420
12840
19260
25680
32100
38520
44940
51360
57780
64200
70620
0.4052
0.3156
0.2389
0.1711
0.1151
0.0764
0.0475
0.0281
0.0166
0.0087
0.0044
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
15000 18000
90
90
90
90
90
90
90
90
90
90
90
1215600
946800
716700
513300
345300
229200
142500
84300
49800
26100
13200
12,22,020
9,59,640
7,35,960
5,38,980
3,77,400
2,67,720
1,87,440
1,35,660
1,07,580
90,300
83,820
Pradeep Motwani
60

LAP - Raw Material Inventory Reduction

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Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Pradeep Motwani 21-03-2009

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6

5.1.3 Service level.................................................................................................. 43 5.1.4 MRP & Scheduling problem ..................................................................... 43

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Sub category AI, AII, BI AIII, BII, CI BIII, CII, CIII

Inventory level Low Moderate High

Figure1. 2: Classification in Multi-criteria ABC analysis

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Reverse Inventory consignment Buyer Supplier

Service level An important element of customer service and logistics management is to

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

assembly at an automobile Assembly plant.

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

4 Analysis and Interpretation of data

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Upper cover WHEEL RIM 'A' WHEEL RIM 'B'

366 1048 1484 1401

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Table4. 6: Format for delivery trend analysis of supplier

Delivery Part No Part name Suppliers Interval Days

Average supplies per month

Raw Material Inventory Reduction in an Automobile Assembly Plant

Figure4. 1: Current Scheduling Process showing conversion of tentative to firm flow

Rolling schedules After material planning calculation, requirement is divided weekly

Raw Material Inventory Reduction in an Automobile Assembly Plant

Table4. 7: Current Rolling schedule format

Figure4. 2: Cause & effect diagram for inappropriate inventory

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Raw Material Inventory Reduction in an Automobile Assembly Plant

Figure4. 3(A): Service level Vs Safety stock

Figure4. 3(B): Probability of stock-out

Raw Material Inventory Reduction in an Automobile Assembly Plant

Figure4. 4(A): Total cost of service level for A category material

Figure4. 4(B): Total cost of service level for B category material

Raw Material Inventory Reduction in an Automobile Assembly Plant

Figure4. 4(C): Total cost of service level for C category material

Raw Material Inventory Reduction in an Automobile Assembly Plant

480 900 1200