The Company uses Centrally Managed Inventory system, CMI, which is a concept to created ensuring high service level for the customer with reasonable inventories. The main idea of the concept is to release resources and ensure more efficient spare parts supply chain. CMI
makes possible automatic replenishments orders without manual order working. The responsible spare part person will only check and approve order proposals. The system takes care that needed parts are available in the right place at the right time. Inventory planning basis on a continuous review system, which is commonly known in academic literature as well.
3.3.1 Information system structure and data flow
The case company has introduced material planning software during the year 2008. The material planning system is used to manage global spare part inventories along the supply chain, from purchasing to all service sites and warehouses. Material planning system and ERP system are connected to each other, and together they form the basis of CMI concept.
The data flow is transferred continuous that begins from ERP system transmit needed materials management data to the material planning system. Using this database the material planning system calculates inventory control parameters for every item and transmit data to the ERP system. Item planning and ABC categorization are done every overnight. The CMI concept architecture and data flow are illustrated in Figure 31.
Figure 31 The CMI concept; software tasks and data flow
ERP system
3.3.2 Item planning and target setting for inventories
The whole inventory management is based on targets setting where the management board of the company (each subsidiary) sets targets for spare part sales, spare part stock value and inventory turnover. The target setting is a yearly process where are set targets for inventory management in each subsidiary. The target setting will be generated to the material planning system, which calculates order point, safety stock and order quantity for stockable items.
There is CMI team in the supply chain department, which manages targets implementation to the material planning system. In the company, target based inventory management is called as a simulation. In material planning system, the simulation is made for planning and managing inventories with the set targets. In the simulation, there is set control values for stockable items for each inventory (see Figure 32). For simulation, there is needed ABC class specific targets for sales (consumption estimation), turnover rate, availability and needed safety stock. When the simulation is done, the system will calculate control parameters for automatic item planning for each item.
Figure 32 Target setting tool in the material planning system
CMI team reviews and re-evaluates targets normally once a year but systematical review practice is not existing. By observation there is not set even same targets to material planning system as set up in management board of the subsidiary. The management board of subsidiary set targets for the whole subsidiary and currently it is confusing who is responsible set targets for each site in the subsidiary. From the performance management point of view this is a critical issue at the moment in the case company. The whole performance management needs to be clear and consistent.
The material planning system is managing item planning automatically, the system calculates and controls safety stock, order lot size and reorder point. Safety stock depends on the lead time and a demand during lead time. The system plans and controls item planning every overnight. The system also calculates an economic order quantity (EOQ), but the system does not use it directly though it is only additional info for item planner. An academic literature recommends using EOQ if inventory and order costs are determined. Item planning can be done by manually also. There is possible to keep items in manual planning if these are wanted to keep in stock or demand will be significantly greater for the future (for example totally new items or campaign parts). Item planning tool can be seen in Figure 33.
Figure 33 Item planning tool in the material planning system
In order to CMI concept works well there are several things and tasks what have to be done right way on time. General processes and transactions in ERP system must be done correct way. Material planning system calculates control parameters for each item and class based on customer orders, work orders and purchase order values. Thus they must always be up to date and used right way in systems. New items and superseded items should be planned and manually planned items up to date in order to CMI can work correct way. Product policy is a major task when are making stocking decision for items. The concept of product policy in the case company is described in section 3.4. From the management point of view, the simulation needs to be done regularly in order that inventory control is up to date with right parameters. It can be said that the simulation is the basis for target-controlled inventory management in the case company. Basic requirements for CMI properly working are illustrated in Figure 34.
Figure 34 Basic requirements for CMI working
Summarized, there are responsibilities for the management board, CMI team and local spare part team in the current CMI concept (see Figure 35). After that information systems are (material planning system and ERP system) managing the operational work and processing either fully automatically or semi-automatically by the material coordinator.
Figure 35 Responsibilities in CMI concept