Procurement methodologies to optimize the inventory levels of spare parts

Abstract

Inventory is essential for the smooth running of any organization. It acts as a link between procurement and sales. Inventory constitutes of current assets/ working capital of the organization. Thus, it is very essential to have suitable control over inventories. The purpose of inventory management is to ensure availability of parts in sufficient numbers as and when required and also to minimize the accumulation. The main objective of this paper is to devise an inventory management method for spare parts management system in order to utilize the space effectively and to stabilize FIFO system which would help the company personnel to keep record of spares precisely. A three dimensional approach is performed using sales order line frequency, seasonal frequency and sales value through ABC analysis. In addition to this, four different procurement techniques are adopted viz., one bin, two bins, multi bins and zero bin. Demand variation is measured for a period of last one year and this parameter is included during the calculation of the inventory maintenance. It is evident that a large amount of money is saved without compromising the customer order fulfilment.