Supply Chain Blog

Supply Chain Analytics drives dramatic spare parts inventory reduction

Posted by Dave Jordan on Thu, May 31, 2018

What business would I like to run or even own? If you had a choice what would it be? A huge global FMCG player or a niche craft brewery in Bourton-on-the-Water? What about starting a pottery in your own home as per the ages old Barclays TV ad? If I had a choice I would buy the company that makes Allen Keys for IKEA.

Every single item you buy contains an Allen Key. Cupboards, shelves, beds, kitchens, chairs. I think you even get an Allen Key when you buy their 4-packs of fresh salmon! How many Allen Keys do they “sell” in a year? The number must be in the millions worldwide; surely, it’s time for a key return initiative?

SUPPLY_CHAIN_ANALYTICS_SPARE_PARTS_INVENTORYAnyway, not all the keys are the same size as IKEA also uses a huge number of different bolts, fixings, screws and nuts and taking their success into account that is quite some inventory. I know IKEA uses a lot of third party manufacturers, but this means huge spare parts inventories are scattered across the globe. I wonder how they manage? I suspect they use some form of Supply Chain Analytics and being IKEA, the package is probably called something like Levy Pupus (it’s an anagram).

While this is not IKEA, I do have an example of how Analytics unlocked working capital and made a significant difference to 1 company with a large spare parts inventory.

The Challenge

This engineering business sold components require for new-build constructions as well as ensuring spare parts availability for subsequent repairs and maintenance. Demand signal profiles were different for each stream and with large differences between individual components, inevitably this was difficult to manage. However, supporting both business streams at high service levels was a USP of the company and therefore vital for success. Perhaps inevitably, the operation was struggling to keep inventory levels under tight control.

The Solution

Analytics was used to segment the demand between the new construction and ongoing spare parts businesses. The team then used SupplyVue to further segment demand for spares into multiple similar granular boxes and analyse the flow of parts through the chain. This analysis reset the replenishment policies and parameters and the resulting inventory availability and stock levels. The analysis revealed inconsistent and poorly matched supply and inventory parameter settings across the portfolio. This provided a significant opportunity to establish a coherent and more appropriate set of policies for each spares segment.

The Impact

1. Pockets of gross excess inventory were identified, and the analysis indicated an 80% inventory reduction was achievable. This resulted in dramatically reduced working capital, lower storage charges AND better service.

2. In addition, the application of more repetitive based replenishment methods and parameters created a much more predictable and smoother demand signal for in-house manufacturing and 3rd party suppliers.

This may be a little more complicated than my desired IKEA key supply business, but it needed a powerful analytics tool to really understand what was going on in a complicated operation.  Analytics can be a once off diagnosis or you can purchase a licence and embed something like SupplyVue into your routine business management.

Why not try a free of charge Supply Chain Health Check?

Image courtesy of hadkhanong at freedigitalphotos.net

Tagss: CEO, Inventory Management & Stock Control, Supply Chain Analytics, Spare Parts