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Inventory Management With Respect To Spare

Parts Availability Assurance Across 54 Channels


and Mother Warehouse: A Case Study
Rohan Dahivale Sagar Bhosale
Sharadchandra Pawar Inst. Rajgad Inst. Of Management
Of Management Research& Devpt.
rohandahivale@rediffmail.com sagarbhosale123@yahoo.co.in

Abstract Dealer‘s kit and the other kit consisting of


‗Company Stock at Dealer end‘. Once the kits
Inventory management of spare parts is a were finalized, managers started pushing
comprehensive study done in a vehicle dealers and customer care managers to place
manufacturing company for a period of three timely purchase orders to ensure that parts are
months. The main objective behind this made available at dealer‘s end within one
research is to understand the patterns of month of placing orders. This has resulted in
customer requirements and to ensure the parts improvement in the fulfillment of dealer‘s
availability in market, which ultimately results order, enhanced customer satisfaction and
in good vehicle sales. Besides, an attempt was increase in sales.
made to improve parts availability across the
channel. Main constraints in achieving this are Keywords: Inventory Management, PDCA,
accurate forecasting, dealer investments, time FSN analysis, VED analysis, HML analysis
availability and inventory requirement planning.
Introduction
The company had done a survey by employing
an external agency, which selected 1046 Parts management is an important aspect of
customers out of 2000. The questions were Inventory management. Non availability of
linked to sales performance. The agency found parts at the dealer level or even in the company
that parts availability is a major threat to the warehouses can have serious repercussions on
sale of the vehicles. Customers were unhappy sales, market share, profits and image of the
about parts availability leading to poor brand company. Their timely availability must be
image and losing market share. Hence the study ensured but without unnecessary blockage of
of parts inventory management. capital. As far as possible scientific inventory
control methods must be employed to control
In this research, secondary data has been parts as it otherwise difficult to predict which
collected from ERP reports. Critical part list has part, in what quantity and at what location will
been generated using Delphi method and then be in short supply.
FSN, VED, and HML analysis has been carried
out followed by application of Plan-Do-Check- In the current case dealers were hesitant to keep
Act method. To handle dealer reservations additional parts in their inventory as they were
about investment in parts, researchers found out already saddled with a lot of non-moving
those dealers were ready to invest up to Rs 2 inventory and did not wish to block their capital
lakhs only. Based on this feedback the any further. On the other hand there was
researchers made two types of kits. One called negative feedback from end users, compelling

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action and steps that would help assure timely Warranty/ 1 3
availability of parts. Claim Related

Secondary Data: (External Agency Survey Total 100 100


done in March 2013) Negative feedback was
given by customers on ‗parts availability‘: 30% (Table 1: Improvement Areas in Service for
out of 743 customers who have used machine Overall Customers)
for more than 300 days.
Concepts
Negative feedback was given by customers on
Selective inventory control is an essential part
‗parts availability‘: 18% out of 303 customers
who have used machine up to 90 days. of inventory management which emphasizes on
variations in methods of control of inventory.
Issues Feedback Feedback
from from Important selective inventory control methods
Customers: Customers: are:
More than Up to 90
300 days (%) days (%) FSN (Fast moving, Slow moving and Non-
moving) Analysis
Unavailability 30 18
Of Spare Parts
This classification relates to consumption
Service Quality 19 17 pattern of parts. Items are classified into FSN
And TAT
on the basis of the date of receiving v/s date of
Product Quality 17 15 issuing materials in the store.

Service Center 10 9 VED (Vital, Essential and Desirable) Analysis


Location
Proximate The VED analysis is done to determine the
criticality of parts and their effect on production
Technically 6 8
Qualified and other services. It is specially used for
Personnel classification of spare parts. If a part is vital it is

Remote Care 5 7 given ‗V‘ classification, if it is essential, then it


Related is given ‗E‘ classification. If part is not so

Weight Of Parts 5 7 essential and alternate part can be used, the part
is given ‗D‘ classification. For ‗V‘ parts, a large
Cost Of Spares 3 5
stock of inventory is generally maintained,
High Cost 2 4 while for ‗D‘ parts, minimum stock is enough.

Issue With 1 4 HML(High, Medium and Low) Analysis


Hydraulics

Space Related 1 3 HML analysis includes classification based on


the per unit value of the parts. The management
decides the cut off prices for the three

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categories of parts. This analysis helps commercial top 100 parts and all critical parts
determine storage and security requirements. are kept at dealer‘s end. Parts costing below Rs.
5000 are kept in Initial Dealer Kit and above
All High value parts are accorded greater
Rs. 5000 are kept in Company kit.
security and tighter controls in purchases, DO
storage and issues. I) Action for Initial Dealer Kit (IDK) at dealer
and Customer Care (CC) end
1. A circular was sent to dealers informing them
Objectives of the study about IDK parts.
2. Dealer was asked to undertake Physical
To ensure the availability of right spare
verifications and order for parts in shortage
parts, at right time, at right locations 3. Dealer to send the non-moving parts back to
across the channel. store.
II) Actions for IDK at Warehouse and
To ensure the availability of right spare procurement end
parts, of right quantity at warehouses. 1. Max stock level enhanced for these parts and
their availability ensured at Head Office
To increase the sale of spare parts. 2. Store team instructed to dispatch these parts
on same day of requisition
Data analysis and interpretation 3. Store team to ensure immediate payment for
parts returned
PLAN
CHECK

I) Check for IDK at dealer and CC end:


1. Customer Care Managers (CCM) to prepare
list of non-available parts by 23rd day of every
month and place an order for the same
2. Managers have selected zone wise Auditors
who will conduct Audit on every 25th day of the
month.
3. From Head Office, researchers have provided
simple format and procedure for Audit.
II) Check at dealer and CC end:
1. Monthly physical stock verification.
III) Check for IDK at Warehouse and
procurement end:
1. Fortnightly Purchase Order report for IDK
parts.
2. Store team to publish the report on FFR for
every month.

ACT
Auditor and HO to make a list of remedies
(Figure 1: PLAN Activity) which will ensure that the order has been placed
for ‗stock out‘ parts.
Critical and top fast mover parts are in Planning team to update the stock norms based
consideration. Top Movers are further dividied on the requirements and to keep sufficient stock
into 2 segments. Parts under warranty and at warehouse.

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Plan (Planning and Analysis for Selection of 2059 parts, a final list of crucial parts was
‘Critical’ Spare Parts) prepared consisting of ‗fast moving‘ ‗vital
parts‘ and few parts that are ‗fast moving as
FSN Analysis well as vital parts‘.
Based on last one year‘s data, researchers have Researchers have selected total 418 such parts.
classified parts as follows: The availability of these parts if assured would
lead to elimination of a majority of customer
FSN Movement Of Number of
Category Parts Parts complaints: .
Considered (Total 2059)
Fast > 42 times for 219 FAST MOVING PARTS 149
moving commercial parts
and 7 times for VITAL PARTS 200
warranty parts
Slow 0 to 42 times for 968 FAST MOVING and VITAL 69
moving commercial parts
and 0 to 7 times PARTS
for warranty parts
Non Not moved since 872 TOTAL 418
moving last 1 year
Table 2: FSN Analysis for Total 2059 Parts Table 4: Final Selection of Critical Parts

VED Analysis Done By Using Delphi Method


Two Main Kits Generated From 418 Line
VED analysis was carried out on a total 2059
Parts
parts.
Vital – This list was prepared based on inputs After this researchers created 2 Kits, which
from Customer Care Manager and technical would manage overall parts availability in the
desk and consist of items which if not available field. Researchers had considered dealer‘s
will lead to breakdown of machine and constraints and other practical problems at their
consequent losses. end and therefore included in their kit low value
Essential – These part lists are taken from ERP parts.
system. These parts are listed under warranty
parts. The non-availability of these parts do not Categorized Line Parts No of line
cause breakdown, but customer may ask for Distribution parts
immediate replacement as machine is under
Dealer Kit 127
warranty.
Desirable – All the remaining parts are taken as Company Kit At Dealer End 213
desirable..
Special Kit 26
VED Number of Parts(Total 2059)
Category Total Number Of Line Parts 35
VITAL 269
Categorized
ESSENTIAL 150 Common Parts 17
DESIRABLE 1640
Final total 418
Table 3: VED Analysis for Total 2059 Parts Table 5: Categorization of 418 Critical Parts
Final Selection of Critical Parts

After FSN and VED analysis was carried out on HML Analysis Done For the Parts Which

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Need To Be Kept In Dealer Kit DO: Format for Dealer Kit Ordering Parts

Researchers have suggested following price Researchers created a simple format for
levels for HML categorization: The parts which knowing stock levels and reordering levels at
cost more than Rs. 30000 to be kept in special dealers‘ end based on Excel. The data would
kit. Parts ranging from Rs. 5000 to Rs. 30000 to help them place timely purchase orders. .
be kept as company kit while those costing less
than Rs. 5000 being low valued items to be kept Dealer Code D26
in dealer‘s stock.
Dealer Name ABC
Table 6: HML Analysis for Total 418 Parts
Number of machines 0
HML Price Cut Off(In Total
CCM Name Mr. XYZ
Category Rupees) 418
High Above Rs. 30000 0
Date 5/5/2013
(15% parts from total
list)
Medium Rs. 5000-30000 (50% 51
parts from total list)
Low Less than Rs. 5000 367
(35% parts of total
list)

Table 7: Format Suggested For Dealer Kit Ordering Parts


Part Code SF0301054 2001EAA00290N
Part Description NUT HEX M18X2X15.8X10 BUCKET BOLT
Gross Net Dealer‘s Price 27.35 49.55
For 10 machines Quantity 26 23
Total value (In ‗000 Rupees) 711.15 1139.66
Quantity that should be
20 50
available at dealer‘s end
Available Quantity at dealer‘s
00 03
end
F-Full available, P -
Partial Available, N - Not N P
available
Balance / Not available
00 00
Quantity
Order Number 523 416
Order Quantity(1.5.13 to
2640 1890
2.6.13)
Previous Order Pending
00 210
Quantity
Total Quantity 2640 2100
Total value 72209.28 155043.89

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CHECK : Audit Format
Researchers selected auditors from available man power based on their experience and Head of
Department‘s recommendations.
These auditors were requested to audit data on below listed data/criteria and thus ensure timely
ordering of parts.

Dealer Code CFS0016 CFG0081 CFS0033


Dealer‘s Name ABC Pvt. Ltd LMN Pvt. Ltd PQR Pvt. Ltd
Dealer‘s Head Office
Muzaffarpur Ahmedabad Madurai
location
Zone East West South
Date Of Audit 28/5/2013 22/5/2013 30/05/2013
Machine population 39 50 12
How many parts are fully
90 89 86
available with dealer?
How many non-available
30 71 52
parts ordered at Head Office?
Value of the ordered parts 0.45Lakhs 2.02 Lakhs 1.86 Lakhs
How many "non-available
Order placed and
parts" are not ordered till 41 55
parts Received
time? (with reason)
Target date/ Remarks (If Any)
Category Order Placed Order Placed Order Placed
Table 8: Format Suggested For Audit

ACT: Dealer Kit Part Status - Follow Up Taken With Customer Care Manager

Researchers have taken follow up with auditors and dealers to complete the parts ordering. As is
evident the problems were being resolved over time.

Dealer Kit Status 10/6/13 In % 22/6/13 In % 5/7/13 In %

Bank Guarantee Issue 7 12.96 6 11.11 4 7.41

Not Replied 9 16.67 7 12.96 - 0

Order to be Placed 17 31.48 9 16.67 10 18.52

Order Placed 21 38.89 32 59.26 40 74.07

Total Dealers 54 100 54 100 54 100

Table 9: Dealer Kit Part Status


Warehouse Stock Summary parts in warehouse and timely supply to
respective buyers were verified.
Researchers ensured that parts are available at
warehouse and that the inventory department has
kept up to increased stock levels. Availability of

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Warehouse 10.6.13 22.6.13 5.7.13 17.7.13
stock
summery

(On
Dates)

Total no 418 418 418 418


of line
parts

Available 253 268 298 403 GRAPH: Comparison of Customer Satisfaction


at
Efficient
stock
level

Less than 165 150 120 15


Efficient
stock

Table 10: Warehouse Stock Summary

RESULTS

Parameters Feedback Feedback GRAPH: Comparison of Dealer‘s Order


from from Fulfillment
Customers: Customers:
March July 2013 Result:
2013
Sr. Month Sales Revenues In
Result Customer 52 % 93 % No. Rupees (Lakhs)
1 Satisfaction
1 April 2013 73.66
Result Dealer‘s 74 % 95 %
2 2 May 2013 100.09
Order
Fulfillment 3 June 2013 85.8

Source: External Agency Survey done in March 4 July 2013 121.51


2013 and July 2013

Source: External Agency Survey done in March


2013 and July 2013

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company and the external agency cannot be
mentioned.

Due to constraints researchers were not able to


take into account all parts moving in market

A change in the trend of parts requirement will


lead to non-moving inventory.

Abbreviations

BO: Back Order


CCM: Customer Care Managers
FFR: First Fill Ratio
IDK: Initial Dealer Kit
GRAPH IMPROVEMENT in Spare Parts Sale CC: Customer Care

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