DEVELOPMENT OF DIRECT MATERIAL INVENTORY OPTIMISATION MODEL FOR A BUS MANUFACTURING INDUSTRY

In order to achieve organisation’s objectives and gain competitive advantage, it is crucial to maintain optimum inventory levels. Inventory control has become more complex due to higher customer service levels, cost control, space constraints and newer technologies. But, the traditional approach lacks to provide optimal solutions such as reduced inventory related cost, avoid excess stocking and shortages. The inventory turnover days depicts blocked capital investments which needs be optimised to facilitate a successful business function. Inventory optimisation is sought for having a better managerial control on parts based on consumption value and priority. In this paper, the demand data of the direct materials used in the bus manufacturing has been collected for analysis. With the collected demand data, part prioritisation has been done based on consumption value, criticality of parts and consumption rate using FSN, ABC, VED and ABC-VED matrix. The outcome of the analysis classified 517 parts into three classes such as high, medium and low priority. In addition, the manual procurement process has been converted to an auto-MRP system which schedules the part quantity and date. The optimal order quantity for multiple parts inventory model has been applied to standardise “when” and “how much” order to be placed. 141 parts (27%) were classified into Class 1 for stringent managerial control. After implementation of different inventory models based on the three classes of parts, 4% reduction in overall stock value has been achieved. Based on the pilot study, optimisation has been horizontally deployed for other possible parts which resulted in 7% reduction of inventory turnover days from existing levels.