Improving Inventory Management and Forecasting Procedures for Komatsu Company
Added on 2023-04-21
48 Pages14320 Words290 Views
University
Semester
Supply Chain Management
Student ID:
Student Name:
Submission Date:
1
Semester
Supply Chain Management
Student ID:
Student Name:
Submission Date:
1
Table of Contents
1. Introduction................................................................................................................................3
1.1 Problem Statement.................................................................................................................4
1.2 Aim .....................................................................................................................................4
1.3 Objectives...............................................................................................................................4
2. Question 1..................................................................................................................................4
2.1 Reduce E/O Inventory............................................................................................................5
2.2 Separate the Categories..........................................................................................................8
2.3 Determine the Top items to Target........................................................................................8
2.4 Understand the Obsolete and excess inventory......................................................................9
2.5 Develop plan to disposition O/E inventory............................................................................9
2.6 Develop plan for prevention in the future..............................................................................9
3. Question 2................................................................................................................................10
3.1 Opportunities for inventory to be “pooled” for all locations...............................................10
3.2 Same material numbers purchased in multiple locations?...................................................11
3.3 Price variances or different vendors.....................................................................................12
3.4 Opportunities for Cost Reduction, Lead Time Reduction, Inventory Reduction................26
4. Question 3................................................................................................................................28
5. Results and Discussion.............................................................................................................42
6. Conclusion................................................................................................................................44
7. Future work and Recommendations.........................................................................................46
References.......................................................................................................................................47
2
1. Introduction................................................................................................................................3
1.1 Problem Statement.................................................................................................................4
1.2 Aim .....................................................................................................................................4
1.3 Objectives...............................................................................................................................4
2. Question 1..................................................................................................................................4
2.1 Reduce E/O Inventory............................................................................................................5
2.2 Separate the Categories..........................................................................................................8
2.3 Determine the Top items to Target........................................................................................8
2.4 Understand the Obsolete and excess inventory......................................................................9
2.5 Develop plan to disposition O/E inventory............................................................................9
2.6 Develop plan for prevention in the future..............................................................................9
3. Question 2................................................................................................................................10
3.1 Opportunities for inventory to be “pooled” for all locations...............................................10
3.2 Same material numbers purchased in multiple locations?...................................................11
3.3 Price variances or different vendors.....................................................................................12
3.4 Opportunities for Cost Reduction, Lead Time Reduction, Inventory Reduction................26
4. Question 3................................................................................................................................28
5. Results and Discussion.............................................................................................................42
6. Conclusion................................................................................................................................44
7. Future work and Recommendations.........................................................................................46
References.......................................................................................................................................47
2
1. Introduction
In the inventory management of spare parts, the breakers are utilized in the
underground and surface mining industry for crushing the materials, where the materials such
as aggregate, coal etc., are moved from the mines to the collection points like ocean and train
vessels. The process of crushing the products into small pieces is denoted as the feeder
breaker operation, which is a self-destructive process. This process results in high rate of
replacement parts. To enhance customer satisfaction, the business of spare parts plays a major
role and it maximizes the opportunities of repurchasing. Thus, for the customers it ensures to
provide optimal service levels. In spare part inventory, forecasting is essential as it helps
with predictive management of the spare parts, by utilizing the previous and existing data.
When compared to the finished products, the supply chain management of spare parts is
highly complex. It is observed that forecasting is difficult, as the demand for the spare parts is
relatively inconsistent. The Supply chain performance is often evaluated against the speed of
the service measure like the OFLT (Order Fulfilment Lead Time). OFLT measures the time
taken from when the order is placed to customer receipt. As per the spare parts supply chain
management’s nature, it is important that to have short OFLT for effective performance.
Because, most of the customers don’t prefer ordering if the equipment breaks down.
However, some customers wait for the arrival of their order. But, due to stock out, there are
chances of satisfying the order, as the customers don’t wish to have downtime. This entire
problem arises due to the lack of spare parts in the shelves, as and when required. Hence,
results in manufacturing the replacements.
Such situation can be highly risky for the organizations like Komatsu. Because, the
poor inventory management can increase the chances of losing the customers. Therefore,
Komatsu is required to improve its supply chain management by efficiently improving its
supply chain design.
1.1 Problem Statement
The problem includes the company faces increased E&O (Errors and omissions
insurance) to 6 million. It is difficult and risky for the company to spend so much on liability
insurance claims made by the clients against the company and workers’ negligent actions or
inadequate work. The other problems include reducing the excess spare part inventory and
stocking the right amount of inventory for fulfilling the customer order.
3
In the inventory management of spare parts, the breakers are utilized in the
underground and surface mining industry for crushing the materials, where the materials such
as aggregate, coal etc., are moved from the mines to the collection points like ocean and train
vessels. The process of crushing the products into small pieces is denoted as the feeder
breaker operation, which is a self-destructive process. This process results in high rate of
replacement parts. To enhance customer satisfaction, the business of spare parts plays a major
role and it maximizes the opportunities of repurchasing. Thus, for the customers it ensures to
provide optimal service levels. In spare part inventory, forecasting is essential as it helps
with predictive management of the spare parts, by utilizing the previous and existing data.
When compared to the finished products, the supply chain management of spare parts is
highly complex. It is observed that forecasting is difficult, as the demand for the spare parts is
relatively inconsistent. The Supply chain performance is often evaluated against the speed of
the service measure like the OFLT (Order Fulfilment Lead Time). OFLT measures the time
taken from when the order is placed to customer receipt. As per the spare parts supply chain
management’s nature, it is important that to have short OFLT for effective performance.
Because, most of the customers don’t prefer ordering if the equipment breaks down.
However, some customers wait for the arrival of their order. But, due to stock out, there are
chances of satisfying the order, as the customers don’t wish to have downtime. This entire
problem arises due to the lack of spare parts in the shelves, as and when required. Hence,
results in manufacturing the replacements.
Such situation can be highly risky for the organizations like Komatsu. Because, the
poor inventory management can increase the chances of losing the customers. Therefore,
Komatsu is required to improve its supply chain management by efficiently improving its
supply chain design.
1.1 Problem Statement
The problem includes the company faces increased E&O (Errors and omissions
insurance) to 6 million. It is difficult and risky for the company to spend so much on liability
insurance claims made by the clients against the company and workers’ negligent actions or
inadequate work. The other problems include reducing the excess spare part inventory and
stocking the right amount of inventory for fulfilling the customer order.
3
1.2 Aim
The main aim of this project is to help Komatsu Company improvise its inventory
management and forecasting procedures.
1.3 Objectives
The main objective of this project is to improve the inventory management of
Komatsu Company. At present, its inventory management fails to provide an effective
outcome thus resulting in loss of customers. Therefore, it aims for better utilization of
inventory management design along with an effective forecasting procedure.
According to the analysis of the inventory data, the following key points must be
understood, for improving the usage of inventory management design:
1) Evaluate the current inventory and separate by categories.
2) Determine the top items to be targeted.
3) Reduce the E/O inventory.
4) Develop a plan for the disposition of O/E inventory.
5) Develop a plan for the future prevention.
6) Look for areas to increase the turns and reduce the cost.
7) Avoid excess inventory.
2. Question 1
In this question, we use the current inventory data and display the total inventory at
the beginning of January globally. This data contains the all the CoCode category items and it
shows the 2 years and LWO based inventory data. In this question, we shall evaluate the
below mentioned points such as,
Reduce E/O Inventory
Separate the Categories
Determine the Top item to target
Understand the Obsolete and excess inventory
Develop plan to disposition O/E inventory
Develop plan for prevention in the future
4
The main aim of this project is to help Komatsu Company improvise its inventory
management and forecasting procedures.
1.3 Objectives
The main objective of this project is to improve the inventory management of
Komatsu Company. At present, its inventory management fails to provide an effective
outcome thus resulting in loss of customers. Therefore, it aims for better utilization of
inventory management design along with an effective forecasting procedure.
According to the analysis of the inventory data, the following key points must be
understood, for improving the usage of inventory management design:
1) Evaluate the current inventory and separate by categories.
2) Determine the top items to be targeted.
3) Reduce the E/O inventory.
4) Develop a plan for the disposition of O/E inventory.
5) Develop a plan for the future prevention.
6) Look for areas to increase the turns and reduce the cost.
7) Avoid excess inventory.
2. Question 1
In this question, we use the current inventory data and display the total inventory at
the beginning of January globally. This data contains the all the CoCode category items and it
shows the 2 years and LWO based inventory data. In this question, we shall evaluate the
below mentioned points such as,
Reduce E/O Inventory
Separate the Categories
Determine the Top item to target
Understand the Obsolete and excess inventory
Develop plan to disposition O/E inventory
Develop plan for prevention in the future
4
2.1 Reduce E/O Inventory
To reduce the inventory item in two year, by see the 12 month use the overall
inventory data and delete the 0 values of 12 month use. Finally, we are removed the no use of
2 year inventory items. The overall inventory data has 17,698 inventory items. After, the no
use of inventory data in two year, it will reduced by 16,784. It is displayed as below
(SCMDojo, 2019).
Reduce E/O Inventory in Product division and regions
Current E/O inventory is shown below.
CRUSHING & CONVEYING JANUARY STOCK VALUES AND YEARLY USAGE VALUES
Stock Value (USD) CoCode
Category
Product
Divisions/Regions
2YR LW0 LW1 MID NEW TAR Grand
Total
CCP Surface Conveyor 6,80,638 3,66,478 4,43,421 12,00,62
1
83,44,255 17,25,07
4
1,27,60,487
AUS 1,44,698 1,65,966 2,29,041 2,08,529 65,148 1,32,767 9,46,149
BRAZIL 3,38,042 26,332 7,32,186 10,96,560
CANADA 960 893 1,853
CHILE 376 376
CHINA 68 370 33 471
POLAND 483 12 46 21 14,642 15,204
RSA 147 147
RUSSIA 85 275 10,456 1 10,817
5
To reduce the inventory item in two year, by see the 12 month use the overall
inventory data and delete the 0 values of 12 month use. Finally, we are removed the no use of
2 year inventory items. The overall inventory data has 17,698 inventory items. After, the no
use of inventory data in two year, it will reduced by 16,784. It is displayed as below
(SCMDojo, 2019).
Reduce E/O Inventory in Product division and regions
Current E/O inventory is shown below.
CRUSHING & CONVEYING JANUARY STOCK VALUES AND YEARLY USAGE VALUES
Stock Value (USD) CoCode
Category
Product
Divisions/Regions
2YR LW0 LW1 MID NEW TAR Grand
Total
CCP Surface Conveyor 6,80,638 3,66,478 4,43,421 12,00,62
1
83,44,255 17,25,07
4
1,27,60,487
AUS 1,44,698 1,65,966 2,29,041 2,08,529 65,148 1,32,767 9,46,149
BRAZIL 3,38,042 26,332 7,32,186 10,96,560
CANADA 960 893 1,853
CHILE 376 376
CHINA 68 370 33 471
POLAND 483 12 46 21 14,642 15,204
RSA 147 147
RUSSIA 85 275 10,456 1 10,817
5
UK 1,65,929 1,06,391 91,234 6,87,296 82,42,811 2,97,045 95,90,706
USA 31,025 93,834 1,23,032 2,67,027 21,136 5,62,150 10,98,204
CCP Tunnel 80,109 1,742 26,381 10,11,417 4,315 11,23,964
RSA 16 16
UK 80,109 1,742 26,381 10,11,401 4,315 11,23,948
CCP Undrgrd
Conveyor
23,55,812 9,73,931 33,07,93
8
38,06,59
7
19,44,678 54,25,11
1
1,78,14,067
AUS 6,34,831 3,50,656 11,77,63
4
8,60,733 5,77,350 3,32,004 39,33,208
BRAZIL 1,34,126 1,34,126
CANADA 197 79,686 40,604 1,57,968 2,78,455
CHILE 333 333
CHINA 879 47 71 17 105 548 1,667
MEXICO 11,021 11,021
PERU 2,389 10,312 12,701
POLAND 1 40 1,847 1,888
RSA 169 0 169
RUSSIA 9,45,455 0 15,293 4,128 41,575 0 10,06,451
UK 1,52,109 1,14,958 5,20,278 7,39,848 4,02,172 10,35,98
7
29,65,352
USA 6,08,429 3,74,144 15,94,66
2
21,22,18
4
8,72,520 38,96,75
7
94,68,696
Goodman - Hewitt 2,24,171 1,64,171 3,17,792 2,67,626 6,481 2,58,276 12,38,517
AUS 198 153 351
CANADA 1,405 1,405
CHINA 42 42
MEXICO 2,065 2,065
RUSSIA 8 661 669
USA 2,22,106 1,64,163 3,17,792 2,66,221 6,241 2,57,462 12,33,985
Grand Total 33,40,730 15,06,32
2
40,69,15
1
53,01,22
5
1,13,06,83
1
74,12,77
6
3,29,37,035
Reduced E/O inventory data based on Product division and regions is displayed as below.
CRUSHING & CONVEYING JANUARY STOCK VALUES AND YEARLY USAGE VALUES
Stock Value (USD) CoCode
Category
Product
Divisions/Regions
2YR LW0 LW1 MID NEW TAR Grand
Total
CCP Surface Conveyor 6,80,638 3,66,478 4,43,421 12,00,62
1
83,44,255 17,25,07
4
1,27,60,487
AUS 1,44,698 1,65,966 2,29,041 2,08,529 65,148 1,32,767 9,46,149
6
USA 31,025 93,834 1,23,032 2,67,027 21,136 5,62,150 10,98,204
CCP Tunnel 80,109 1,742 26,381 10,11,417 4,315 11,23,964
RSA 16 16
UK 80,109 1,742 26,381 10,11,401 4,315 11,23,948
CCP Undrgrd
Conveyor
23,55,812 9,73,931 33,07,93
8
38,06,59
7
19,44,678 54,25,11
1
1,78,14,067
AUS 6,34,831 3,50,656 11,77,63
4
8,60,733 5,77,350 3,32,004 39,33,208
BRAZIL 1,34,126 1,34,126
CANADA 197 79,686 40,604 1,57,968 2,78,455
CHILE 333 333
CHINA 879 47 71 17 105 548 1,667
MEXICO 11,021 11,021
PERU 2,389 10,312 12,701
POLAND 1 40 1,847 1,888
RSA 169 0 169
RUSSIA 9,45,455 0 15,293 4,128 41,575 0 10,06,451
UK 1,52,109 1,14,958 5,20,278 7,39,848 4,02,172 10,35,98
7
29,65,352
USA 6,08,429 3,74,144 15,94,66
2
21,22,18
4
8,72,520 38,96,75
7
94,68,696
Goodman - Hewitt 2,24,171 1,64,171 3,17,792 2,67,626 6,481 2,58,276 12,38,517
AUS 198 153 351
CANADA 1,405 1,405
CHINA 42 42
MEXICO 2,065 2,065
RUSSIA 8 661 669
USA 2,22,106 1,64,163 3,17,792 2,66,221 6,241 2,57,462 12,33,985
Grand Total 33,40,730 15,06,32
2
40,69,15
1
53,01,22
5
1,13,06,83
1
74,12,77
6
3,29,37,035
Reduced E/O inventory data based on Product division and regions is displayed as below.
CRUSHING & CONVEYING JANUARY STOCK VALUES AND YEARLY USAGE VALUES
Stock Value (USD) CoCode
Category
Product
Divisions/Regions
2YR LW0 LW1 MID NEW TAR Grand
Total
CCP Surface Conveyor 6,80,638 3,66,478 4,43,421 12,00,62
1
83,44,255 17,25,07
4
1,27,60,487
AUS 1,44,698 1,65,966 2,29,041 2,08,529 65,148 1,32,767 9,46,149
6
BRAZIL 3,38,042 26,332 7,32,186 10,96,560
CHILE 376 376
POLAND 483 12 46 21 14,642 15,204
RUSSIA 85 275 10,456 1 10,817
UK 1,65,929 1,06,391 91,234 6,87,296 82,42,811 2,97,045 95,90,706
USA 31,025 93,834 1,23,032 2,67,027 21,136 5,62,150 10,98,204
CCP Tunnel 80,109 1,742 26,381 10,11,417 4,315 11,23,964
UK 80,109 1,742 26,381 10,11,401 4,315 11,23,948
CCP Undrgrd
Conveyor
23,55,812 9,73,931 33,07,93
8
38,06,59
7
19,44,678 54,25,11
1
1,78,14,067
AUS 6,34,831 3,50,656 11,77,63
4
8,60,733 5,77,350 3,32,004 39,33,208
CANADA 197 79,686 40,604 1,57,968 2,78,455
CHILE 333 333
CHINA 879 47 71 17 105 548 1,667
MEXICO 11,021 11,021
PERU 2,389 10,312 12,701
RSA 169 0 169
RUSSIA 9,45,455 0 15,293 4,128 41,575 0 10,06,451
UK 1,52,109 1,14,958 5,20,278 7,39,848 4,02,172 10,35,98
7
29,65,352
USA 6,08,429 3,74,144 15,94,66
2
21,22,18
4
8,72,520 38,96,75
7
94,68,696
Goodman - Hewitt 2,24,171 1,64,171 3,17,792 2,67,626 6,481 2,58,276 12,38,517
MEXICO 2,065 2,065
USA 2,22,106 1,64,163 3,17,792 2,66,221 6,241 2,57,462 12,33,985
Grand Total 33,40,730 15,06,32
2
40,69,15
1
53,01,22
5
1,13,06,83
1
74,12,77
6
3,29,37,035
2.2 Separate the Categories
The separation of categories in ZLZOKN is displayed as below.
Region (All)
Stock Value
(USD)
CoCode Category
Product
Lines
2YR LW0 LW1 MID NEW TAR Grand Total
CCP Surface
Conveyor 6,92,654 2,96,757 4,31,596 11,75,205 65,87,9
76
17,76,944 1,09,61,132
CCP Tunnel
81,128 1,370 42,449 3,74,21
0 749 4,99,906
CCP Undrgrd
Conveyor 23,20,47
8
9,91,075 32,34,73
1 44,62,286 36,93,2
00
55,72,336 2,02,74,106
7
CHILE 376 376
POLAND 483 12 46 21 14,642 15,204
RUSSIA 85 275 10,456 1 10,817
UK 1,65,929 1,06,391 91,234 6,87,296 82,42,811 2,97,045 95,90,706
USA 31,025 93,834 1,23,032 2,67,027 21,136 5,62,150 10,98,204
CCP Tunnel 80,109 1,742 26,381 10,11,417 4,315 11,23,964
UK 80,109 1,742 26,381 10,11,401 4,315 11,23,948
CCP Undrgrd
Conveyor
23,55,812 9,73,931 33,07,93
8
38,06,59
7
19,44,678 54,25,11
1
1,78,14,067
AUS 6,34,831 3,50,656 11,77,63
4
8,60,733 5,77,350 3,32,004 39,33,208
CANADA 197 79,686 40,604 1,57,968 2,78,455
CHILE 333 333
CHINA 879 47 71 17 105 548 1,667
MEXICO 11,021 11,021
PERU 2,389 10,312 12,701
RSA 169 0 169
RUSSIA 9,45,455 0 15,293 4,128 41,575 0 10,06,451
UK 1,52,109 1,14,958 5,20,278 7,39,848 4,02,172 10,35,98
7
29,65,352
USA 6,08,429 3,74,144 15,94,66
2
21,22,18
4
8,72,520 38,96,75
7
94,68,696
Goodman - Hewitt 2,24,171 1,64,171 3,17,792 2,67,626 6,481 2,58,276 12,38,517
MEXICO 2,065 2,065
USA 2,22,106 1,64,163 3,17,792 2,66,221 6,241 2,57,462 12,33,985
Grand Total 33,40,730 15,06,32
2
40,69,15
1
53,01,22
5
1,13,06,83
1
74,12,77
6
3,29,37,035
2.2 Separate the Categories
The separation of categories in ZLZOKN is displayed as below.
Region (All)
Stock Value
(USD)
CoCode Category
Product
Lines
2YR LW0 LW1 MID NEW TAR Grand Total
CCP Surface
Conveyor 6,92,654 2,96,757 4,31,596 11,75,205 65,87,9
76
17,76,944 1,09,61,132
CCP Tunnel
81,128 1,370 42,449 3,74,21
0 749 4,99,906
CCP Undrgrd
Conveyor 23,20,47
8
9,91,075 32,34,73
1 44,62,286 36,93,2
00
55,72,336 2,02,74,106
7
Feeder Brk
AbovG 4,11,409 2,13,683 1,49,794 3,35,105 8,80,51
9
2,28,790 22,19,300
Feeder Brk
UndG 24,60,09
2
10,28,939 17,28,80
2 39,49,821 25,72,8
58
22,16,354 1,39,56,866
Goodman -
Hewitt 2,00,736 2,41,657 3,06,409 2,83,948 32,041 2,67,793 13,32,584
Sizer
15,720 2,947 9,170 24,369 1,75,38
7 7,870 2,35,463
Grand Total
61,82,21
7
27,76,428 58,60,50
2
1,02,73,183 1,43,16
,191
1,00,70,83
6
4,94,79,357
ZLZOKN Category Criteria
2YR No Usage in 24 Month; No requirements
LW0 No Usage in 12 Month; No requirements
LW1 No Usage in 24 Months; Requirement Exists
MID Items that turn < 3 times
TAR Items that turn > 3 times
NEW Material Rec'd 1st time in 24 months with 0 on hand
2.3 Determine the Top items to Target
Based on separate categories, the Top item to target is shown below.
CCP Undrgrd
Conveyor 23,20,47
8
9,91,075 32,34,73
1 44,62,286 36,93,2
00
55,72,336 2,02,74,106
2.4 Understand the Obsolete and excess inventory
In general, obsolete inventory refers to the inventory, at the end of its product life
cycle. The obsolete inventory is the product which has not been sold or utilized for a longer
time, and even in future there are no possibilities of getting it sold. Such type of inventory is
considered as a great loss for the company. There are various reasons that cause obsolete
inventory, some of the main reasons are, poor quality product/ design and inaccurate
customer demand forecasting (DEAR Cloud Inventory Management, 2017).
Whereas, the excess inventory refers to a product which is not yet sold and is
exceeding the predicted demands of the consumer. Excess inventory denotes stock demand’s
mismanagement, due to certain factors like, inaccurate projections, over-buying, cancelled
orders, unexpected changes in weather, late or early delivery of goods and company’s bad
economy situation (INTURN, 2017).
8
AbovG 4,11,409 2,13,683 1,49,794 3,35,105 8,80,51
9
2,28,790 22,19,300
Feeder Brk
UndG 24,60,09
2
10,28,939 17,28,80
2 39,49,821 25,72,8
58
22,16,354 1,39,56,866
Goodman -
Hewitt 2,00,736 2,41,657 3,06,409 2,83,948 32,041 2,67,793 13,32,584
Sizer
15,720 2,947 9,170 24,369 1,75,38
7 7,870 2,35,463
Grand Total
61,82,21
7
27,76,428 58,60,50
2
1,02,73,183 1,43,16
,191
1,00,70,83
6
4,94,79,357
ZLZOKN Category Criteria
2YR No Usage in 24 Month; No requirements
LW0 No Usage in 12 Month; No requirements
LW1 No Usage in 24 Months; Requirement Exists
MID Items that turn < 3 times
TAR Items that turn > 3 times
NEW Material Rec'd 1st time in 24 months with 0 on hand
2.3 Determine the Top items to Target
Based on separate categories, the Top item to target is shown below.
CCP Undrgrd
Conveyor 23,20,47
8
9,91,075 32,34,73
1 44,62,286 36,93,2
00
55,72,336 2,02,74,106
2.4 Understand the Obsolete and excess inventory
In general, obsolete inventory refers to the inventory, at the end of its product life
cycle. The obsolete inventory is the product which has not been sold or utilized for a longer
time, and even in future there are no possibilities of getting it sold. Such type of inventory is
considered as a great loss for the company. There are various reasons that cause obsolete
inventory, some of the main reasons are, poor quality product/ design and inaccurate
customer demand forecasting (DEAR Cloud Inventory Management, 2017).
Whereas, the excess inventory refers to a product which is not yet sold and is
exceeding the predicted demands of the consumer. Excess inventory denotes stock demand’s
mismanagement, due to certain factors like, inaccurate projections, over-buying, cancelled
orders, unexpected changes in weather, late or early delivery of goods and company’s bad
economy situation (INTURN, 2017).
8
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