Managing Spare Parts Inventory by Incorporating Holding Costs and Storage Constraints

Babatunde Omoniyi Odedairo 1
  • 1 Department of Industrial and Production Engineering, University of Ibadan, Ibadan, Nigeria

Abstract

A key factor for motivating intending buyers of raw materials is vendor responsiveness. Therefore, to meet demand, a pre-approved level of stocks is often maintained. In contrast, the decision to keep an uncontrolled amount of stock could be counter-productive with cost components associated with holding often ignored unintentionally. In this study, the objective is to develop a spare parts inventory model that incorporates ignored holding costs with a storage constraint for a motorcycle assembly plant (MAP). The inventory policy, structure of holding costs, and spare parts sales reports were consulted for relevant data. The spare parts were categorized and selected using ABC analysis. A spare parts inventory model, which considers ignored holding cost, was formulated. The model was executed using Lingo optimisation software release 18.0.56 to determine the pair of the order quantity (Ɋ) and reorder point (Ɍ). 177 spare part items were identified using ABC analysis. The parts categorisation revealed that 21, 31, 125 part items belong to categories A, B, and C with 81, 15 and 4% of annual sales value, respectively. From category A, nine items contributed significantly to overall sales. The demand pattern for these items was probabilistic based on their coefficient of variation. The pair (Ɋ, Ɍ) for items N, Z, AY, K, AM, J, P, AL and AZ are (174,688), (71,147), (78,150), (86,163), (18,15), (88,170), (128,118), (33,43) and (87,152), respectively. These pairs yielded a total inventory cost of ₦2,177,363 when compared to the current total inventory investment of ₦6,800,000 resulting in a 67.9% cost reduction. A model to manage spare parts inventory with relevant holding cost components was developed for MAP to ensure the availability of items, maximize usage of storage space, and minimize total inventory cost.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Adamu, I. I. (2017). Reorder Quantities for (Q, R) Inventory Models. International Mathematical Forum, 12(11), 505-514.

  • Adeyeye, J. O., Ogunnaike, O., Amaihian, A., Oludokun, M., and Inelo, F. (2016). Inventory Control and Performance of Manufacturing Firms. Journal of Engineering and Applied Science, 11(2), 199-203.

  • Azzi, A., Battini, D., Faccio, M., Persona, A., and Sgarbosas, F. (2014). Inventory Holding Costs Measurement: A Multi-case Study. The International Journal of Logistics Management, 25(1), 109-132.

  • Etale, L. M., and Bingilar, P. F. (2016). The Effect of Inventory Cost Management on Profitability: A Study of Listed Brewery Companies in Nigeria. International Journal of Economics, Commerce and Management 4 (6), 446-455.

  • Foster, R.S. (1964) What Does It Cost to Carry Inventory? National Association of Wholesalers.

  • Hopp, W. J., and Spearman, M. L. (2001). Factory Physics-Foundations of Manufacturing Management. New York.. 2nd Ed.

  • Iwu, H. C., Ogbonna, C. J., Jude, O. and Onuma, K. G. (2014). Application of Inventory Model in Determining Stock Control in an Organization. American Journal of Applied Mathematics and Statistics 2 (5), 307-317.

  • Mikalsen, M. M. (2015). Managing the Demand for Spare Parts. Implement Consulting Group Retrieved from http://implementconsultinggroup.com/ on April 20, 2020.

  • Miller, G. J. (2001). Inventory Carrying Costs: Is there a “Right” Way to Calculate Them?. Inventory Reduction Report 8(1). 9-12.

  • Muller, M. (2011). Essentials of Inventory Management. New York: AMACOM - Book Division of American Management Association.

  • Odedairo, B. O., Emilola H.A., and Edem, I. (2020). A System Dynamics Model to Determine the Value of Inventory Holding Cost. Journal of Engineering Studies and Research, 26 (3), 112-123.

  • Ponnuru, R. K., and Karri, J. (2014). Deterministic and Probabilistic Models in Inventory Control. International Journal of Engineering Development and Research 2 (3) 3100-3105.

  • Samak-Kulkarni, S. M., and Rajhans, N. R. (2013) Determination of Optimum Inventory Model for Minimizing Total Inventory Cost. Procedia Engineering 51. 803-809.

  • Vidal-Carreras, P. I., Garcia-Sabater, J. P., and Garcia-Sabater, J. J. (2016). A practical model for managing inventories with unknown costs and a budget constraint. International Journal of Production Research, 55(1). 118-129.

  • Waters, D. (2003). Inventory Control and Management. England: John Wiley & Sons Ltd.

OPEN ACCESS

Journal + Issues

Search