Spare Part Inventory Policy for Long Lead Time

4th Copenhagen Supply Chain Management Summit 2012
- Nomination for cand. merc. SCM Best Thesis 2011-12

“Managing the Demand for Spare Parts”
- A research done in cooperation with Rockwool on how to manage, and thus reduce spare-parts inventories By Mathias Mikalsen Supervisor: Poul Erik Christiansen Sparring partner: Aris Syntetos
Frederiksberg, DK November 14th, 2012

Introduction and Summary
Why have I chosen the area?
• Demand planning • Spare parts are different from finished goods • Unexplored area in the scientific literature, and practise • A great struggle for many companies • Great potentials for improvements

What so special about spare parts?
• Intermittent and Lumpy demand patterns • Disproportional high stockout costs (criticality) • Typical SC strategies cannot be applied • Specific to employ – high risk of obsolescence • Many different variables affecting the management • Thousands of different spare parts

Aim of the paper:
• Achieving a personal academic edge • Provide Rockwool with something useful •Creating a strong “Impact Case” •Show the money!

15 November 2012

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Management Framework
Generic spare part management approach Input variable
Supply characteristics

Data Quality

Stage 1

Criticality

Demand characteristics

• The degree of criticality • The demand characteristics (CV vs. ADI) • Uncertainty in the supply source

Homogeneous groups
Stage 2 Segmentation /Clusters

• Similar characteristics

Stage 3

Forecasting

Safety stock inventory

Performancemeasurement

Optimizing forecasting and inventory policy
• Determine and calculate the best forecast approach, and the optimal Safety stock,

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Applying the developed approach
Applied in the context of Rockwool
• 20 Clusters/segments were discovered • Forecasting tested towards each •Optimal Inventory policy calculated.
Data Quality

Spare parts

Unsuficcient

Sufficent

Demand Characteristics

Stable

Intermittent

Erratic

Lumpy

Lead-time
Long
Short

Long

Short...