CONCLUSIONES

Inventory Management is an integral part of Operations Management. There is no ultimate definition of Operations Management in the literature. Slack et al (2007) as well as Greasley (2008) define Operations Management as the management of processes and resources required to produce and deliver goods and services. Heizer and Render (2010) emphasise the value creating characteristic of these activities. Schroeder (1993, p.4) takes a different view by defining Operations Management as “the study of decision making in the operations function”. In this study both perspectives are recognised to be relevant as management of operations requires decisions in several areas.

Schroeder (1993) identifies five important Operations Management decisions.

Operations managers have to decide regarding the quality of the goods and services, the process and capacity design, the inventory and finally the personnel required for the production of the goods and services. Heizer and Render (2010) widen the decision area by adding decisions on goods and service design, location and layout of the production facilities. Supply Chain Management and maintenance to the points named by Schroeder (1993).

The Supply Chain Management concept was developed over 25 years ago (Skjott-Larsen 1999, Halldorsson et al 2007). Definitions of the term are manifold. Jones and Riley (1987, p. 94) view Supply Chain Management as

“planning and control of total materials flow from suppliers through end-users”.

Schonsleben (2000), Horvath (2001) and Anderson et al (2007) emphasise the coordinating characteristics of Supply Chain Management whereas Cooper and Ellram (1990, p.1 and 1993, p. 13) maintain that Supply Chain Management is

“an integrative philo sophf. For Kuhn and Hellingrath (2002) Supply Chain Management covers optimised collaboration within the value chain. This view is supported by Johnston and Clarke (2005). Babbar and Prasad (1998) and Harland et al (1999) stress the fact, that successful supply chain management requires knowledge of an increasing global business environment. Having recognised the variety of existing definitions. Stock and Boyer (2009) postulate

the development of a consensus definition of Supply Chain Management among researchers and practitioners.

Inventory Management and Supply Chain Management are both seen as strategic areas within Operations Management (Schroeder 1993, Heizer and Render 2010). For Johnston and Clarke (2005), they are linked to each other.

There is no supply chain that operates perfectly as demand cannot be

forecasted with 100% accuracy. Therefore, every supply chain requires some inventory (Johnston and Clarke 2005).

While the objective of Supply Chain Management is to reduce the inventory in a specific supply chain (Kuhn and Hellingrath 2002, Johnston and Clarke 2005), Inventory Management seeks to optimise the inventory required to keep the supply chain in working order (Schroeder 1993).

In literature. Inventory Management is also placed in context of logistics network design (Ballou 1995, Schneeweiss 2003, Reyes 2005, Candas and Kutanoglu 2007).

Inventory Management theory is much older than Supply Chain Management.

The economic order quantity model was published by Harris in 1913 covering the manufacturing industry (Harris 1913, Whitin 1954, Erlenkotter 1990, buxey 2006). Dantzig developed the simplex method of linear programming in 1947 (Dantzig 2002). Arrow et al (1950) provide methods for optimal inventory policies for finished goods There has been a significant increase of the development and use of various Inventory Management methods since the

1950s (Schroder 1993).

Inventory can be defined as both a stored accumulation of material and as information resources (Slack et al 2007). In this study only the material resources in terms of spare parts are considered.

Inventory serves different functions. In manufacturing it allows to decouple individual steps of the production process. It also helps a company to smooth over fluctuations in supply and demand of goods (Schroeder 1993, Slack et al

2007, Heizer and Render 2010). By building up inventory, a company can also take advantage of quantity discounts or hedge against inflation (Heizer and

Render 2010). Spare parts inventory is stored for the company’s own use or for sale. In both cases the ultimate purpose is to replace worn or defective parts in order to keep equipment running (Lawrenson 1986). The increasing importance of inventory for after-sale acitivities is shown by Ashayeri et al (1996) in their study about inventory management for personal computer spare parts. This view is confirmed by Cohen and Lee (1990).

Keeping inventory is always associated with a variety of costs:

(1) The cost for the item itself (Schroeder 1993).

(2) The costs for initial and replenishment ordering (Silver 1981, Schroeder 1993, Heizer and Render 2010).

(3) Transport or holding costs for the capital tied up in the inventory (Schroeder 1993) and for storage of the items in terms of warehouse operations costs and insurance fees (Silver 1981). For parts that are hazardous these costs can be extremely high (Slack et al 2007). Further cost factors here are damage or deterioration, loss and obsolescence (Schroeder 1993, Cobbaert and Van Oudheusden 1996, Slack at al 2007).

(4) System control costs related to data acquisition, computation and implementation of a chosen inventory decision method (Silver 1981).

(5) Stock-out costs incurring when required parts are unavailable (Silver 1981, Badinelli 1986, Lawrenson 1986, Duchessi 1992, Jensen 1992, Walker 1997, Lau and Lau 2008, Wu et al 2009, Scala et al 2010).

While all cost elements are regarded to be more or less accurately measurable, there is dissent among authors when it comes to the measurement of stock-out costs. Silver (1981) distinguishes between short-term cost impacts arising from backorders, lost sales and long-term cost effects from loss of good will from customers. Lawrenson (1986) and Razi and Tarn (2003) constitute that stock­

out costs are difficult to measure and thus can only be estimated whereas Jensen (1992) maintains that these costs can be measured as easily as others.

Although this is based on his findings within the case study he carried out, Jensen proposes that stock-out costs are also measurable in other systems not covered by his case study.

Inventory Management is regarded to be one of the most important functions of Operations Management. Inventory requires a huge amount of capital, but also influences the delivery of goods and services to customers. However, inventory objectives usually differ or even conflict within a company. The finance function would insist on a low level of inventory in order to conserve capital whereas marketing would postulate a high level of inventories to increase sales

(Schroeder 1993). Conflicting objectives within a company have already been confirmed by Oyert and March (1963). In their research they show that firms are coalitions of participants whose individual goals may and often do conflict.

Gaither and Fraser (1984) confirm these findings. Korhonen and Pirttila (2003) propose a tool called decision rights matrix to facilitate cross-functional decision making processes.

Inventory Management requires crucial decisions to be taken in order to

optimise the inventory level and to ensure high system availability while keeping costs low (Huiskonen 2001). These decisions are concerned with determination of:

(1) The items which should be stored (Lawrenson 1986, Schroeder 1993, Tempelmeier 2005)

(2) The initial or replenishment order quantity (Silver 1981, Lawrenson 1986, Schroeder 1986)

(3) The initial or replenishment order point (Silver 1981, Schroeder 1993) (4) The type of inventory control system (Silver 1981, Schroeder 1993) (5) The point of storage when a number of stores are available (Lawrenson 1986, Klose 2001)

(6) The ownership structure of the stored items (Canaday 2010).

Decision making regarding the points listed above will be applied in Chapter 4.

During the field work it has to be decided e.g. which spare parts should be stored and where.

A large number of Inventory Management models is available in literature. The suitability of such a model depends on the type of demand for the inventory.

Inventory demand is categorised as either independent or dependent demand.

The former is subject to market forces and thus independent of the company’s internal operations. The latter results from the demand for another item,

therefore, it is dependent of the company’s internal production (Schroeder 1993, Heizer and Render 2010).

Schroeder (1993) relates independent demand to a fixed demand pattern combined with random influence, and dependent demand to lumpy, on-off patterns. Spare parts demand is classified as “lumpy” by many authors

(Lawrenson 1986, Watson 1987, Huiskonen 2001, Saccani at al 2007, Guiterrez et al 2008, Teunter and Sani 2009) but spare parts, as well as finished goods, are nevertheless characterised as independent- demand inventories by Schroeder (1993).