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Keywords
Inventory control, Spare parts, Re-order levels, Enterprise economics
Abstract
Enterprise resource planning (ERP) systems provide functions to calculate safety stock (SS), make demand forecast and determine reorder point (ROP) for each item contained in the database based on the item's demand history. Most ERP systems are ill-equipped to deal with the demand of slow moving items such as spare parts. Based on data from a Fortune 500 company, presents the development and evaluation of a spare parts inventory control model. Compares the proposed model with the results achieved using the forecasting and inventory management modules of a popular ERP system. Tested with computer simulation, the proposed model significantly outperforms the commercial ERP model on both measures of service level and expected total annual cost
Introduction
Kumar and Van Hillegersberg (2000) define ERP systems as configurable information systems packages that integrate information and information-based processes within and across corporate functional areas such as finance, accounting, human resources, sales and distribution, manufacturing, material procurement, and production. ERP applications evolved from financial packages. In many cases, they often had difficulty in integrating business functions with those involving manufacturing operations on the shop floor (Waurzyniak, 2000). Generally speaking, inventory management functions are contained in the material procurement module of an ERP system and provide functions to calculate safety stock (SS) and reorder point (ROP) for each item contained in the database based on the item's demand history. An ERP system provides ways to analyze the demand history, make forecasting recommendations, and suggest safety stock levels. Packages like Demand Solutions are also available to be used in conjunction with the existing ERP module to enhance the capability of demand forecast. Even though ERP systems are equipped with reasonably sophisticated forecasting tools to forecast the demand of fast moving items, most are ill-equipped to deal with the demand of slow moving items such as spare parts. This is because spare parts are notoriously difficult to manage. While demand is variable and difficult to predict, replenishment lead times are often erratic and stockout costs are hard to measure. In reality, not many can claim that they achieved maximum benefit from their investment in spare parts inventory management (Sandvig and Allaire, 1998). For the reasons described above, ERP...