Logistyka - nauka. Decision for inventory replenishment

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1 Krzysztof Jurczyk 1, Wojciech Woźniak AGH Akademia Górniczo-Hutnicza Logistyka - nauka 2 Selected Problems of the Implementation of the Decision Support System for Inventory Control in an International Production and Distribution Enterprise Introduction In 1862 some Scottish entrepreneur opened a cap factory in Birmingham, UK. By 1881 it had grown to be Britain s largest ammunition manufacturing company but had also diversified new plants had been established (e.g. a printing house and a foundry). Nowadays X Enterprise operates in three business fields: severe service, fluid power and indoor climate. In the paper, selected problems of the implementation of the decision support system for inventory control in the indoor climate business platform has been presented. Literature review Before the problems of the implementation of the decision support system for inventory control in the X Enterprise will have been presented, a concise literature review is necessary. Decision support systems are the subject of interest of many researchers. Sinha et al. [7], as one of the first presented an expert system for inventory management in selected company. The aim of the authors was to develop a userfriendly software tool for making effective decisions pertaining the sphere of inventory management. In another elaboration, Prasad et al. [5] described a decision support system for inventory control built based on artificial intelligence methods. Michlowicz [4] notices, that one of the key factors to enable achieve a high quality level of supply logistics can be an effective information flow system and appropriate computer decision support systems. Similar work was presented later by Biniasz and Żak [1][9], proposed a computer-based system that supports the Decision Maker (dispatcher, shift manager) in crew scheduling in the transportation company. Aspects of implementation of the decision support system are, in turn, the main subject of interest of Wikarek [8]. Inventory management in x enterprise Before the SWD System was implemented in the X Enterprise, inventory have been controlled based on internal company reports. Simplified diagram of the system was illustrated by Fig.1. ERP system data base update MS Excel report update Decision for inventory replenishment Data analysis Fig. 1. Diagram of the inventory management system in the X Enterprise 1 Mgr inż. K. Jurczyk, asystent, AGH Akademia Górniczo-Hutnicza, Wydział Zarządzania, Katedra Inżynierii Zarządzania, Kraków 2 Mgr inż. W. Woźniak, doktorant, AGH Akademia Górniczo-Hutnicza, Wydział Zarządzania, Katedra Inżynierii Zarządzania, Kraków 4395

2 All data connected with inventory flows in the enterprise and included in the ERP system had been being exported to MS Excel reports. Reports analysis allowed the management to make a decision for inventory replenishment. In an individual report there has been placed the following data: sale of particular item for last 12 months, forecasted sale for the current month (calculated as a product of the mean sale of last 11 months and an appropriate seasonal index), stock on hand level, current allocations, current orders, current supplies and recommended stock level. Decision for purchasing SWD System by X Enterprise has been caused by two main factors. The first reason was connected with an actual values of recommended stock levels. The second one was current item number it became too burdensome and time consuming to analyse effectively every particular item s data. Selected problems of the implementation of SWD system in x enterprise SWD System implementation in X Enterprise has become a complicated project. Some of the problems are described in the following paragraphs. The first problem was connected with currency mismatch. SWD System mistakenly suggested the transaction value in PLN, although all historical data were expressed in EUR. Furthermore, the problem used to occur on Mondays on other days the SWD System in most cases properly accepted EUR as the default currency. In Table 1 there has been included the data, which the SWD System displayed for a selected item. As can be seen, there is a data inconsistency problem in Cost column. Table 1. Currency mismatch problem for particular item Week Sale [pcs.] Order value [EUR] Cost [EUR] , , , , , ,86 The problem was solved after re-analysing the input data set. It turned out that the default currency used in inventory and orders sets were different. A price ratio in the corresponding days approximately corresponded to a course of EUR/PLN. Another problem connected with the implementation of SWD System in X Enterprise concerned the mechanism for calculating the customer service level by indicators CSL1 and CSL2. Customer service level determined by CSL1 is defined as a probability of non-occurrence of stock-out in the considered inventory replenishment time. Another way of determining the customer service level is the definition that it is a degree of quantitative demand realisation. Customer service level defined in this way is marked as CSL2. The exact characteristics and methods for calculating those indicators has been described by Krzyżaniak [2][3] and Sariusz-Wolski [6]. In a business practice only one of those indicators is used. The choice should be justified by the demand profile, product characteristics and consequences of stockout. The SWD System was to be able to calculate the value of the CSL2 parameter depending on CSL1 value and vice versa. For the X Enterprise, determining the customer service level by the usage of CSL2 parameter was explainable because the realisation of every particular order has significant impact on total company financial incomes. As a result it was a CSL1 parameter calculated in the SWD System depending on the fixed 4396

3 CSL2 parameter value. In Table 2 calculated values of CSL1 parameters depending on a fixed CSL2 values for A, B and C groups based on ABC-analysis are presented. Table 1. Dependence between CSL2 and CSL2 for A, B and C groups Group Fixed value of CSL2 Calculated value of CSL1 A % % B % % C % % The question occurred: how can it be that values of both parameters CSL1 and CSL2 are not changing even if there are some modifications of other system parameters? It was clear, that the calculating mechanism was invalid and needed improvements. Fortunately the problem was solved, what had the biggest significance on the B and C group. Before the mechanism was improved, although the CSL2 values has been entered as it was shown in Table 2, the SWD System suggested inventory levels based on calculations with non-changeable CSL1 value equal 90%. It is obvious, that stock level suggestion for CSL1 = 54.93% differ from the same one for CSL1 = 90%. The third problem of the SWD System implementation corresponded to errors in historical data which were transferred from the ERP system. The problem was caused because of differences between invoices dates and real sales or buying dates. In some cases the problem was seen as an excess in the sale, whereas in the others as their underestimation. In Table 3 some example for a particular item was presented. The problem has not been solved until the time of receiving or realising of good by the warehouse corresponded to invoice data. Another problem was connected with cancelled orders. In every selling company there are some orders which are modified or cancelled after some period. The SWD System has not differed those orders among the others. The effect of such complication was demand doubling what was presented in Table 4 (Order No. Z001). Unfortunately the problem has not been solved yet. Table 2. Week s sale of particular item Week Sale SWD [pcs.] Sale ERP [pcs.] Difference [pcs.]

4 Table 3. Problem of demand doubling for particular item Order No. Demand date Quantity [pcs.] Sale date Quantity [pcs.] Z Z Z Z Z Z Z The last recorded problem connected with the implementation of SWD System in X Enterprise was to determine the actual stock-on-hand values. The SWD System mistakenly displayed historical data of stock-on-hand values. Furthermore, it was impossible to clearly decide which value was correct. As it was presented in Table 5, the stock-on-hand level of a particular item, which in week no. 34 has became historical data is changing day by day. The situation seems to stabilise in week no. 35. The reason of the problem has not been detected. Certainly, it should be noted that the variations were not dictated by the realization of backlogs. Table 4. Stock-on-hand level for particular item historical data from week no. 33 seen in the SWD System in weeks no. 34 and 35 Week Week s day Stock on hand [pcs.] Monday Tuesday Wednesday Thursday Friday Monday Tuesday Wednesday Thursday Friday Presented problems became the key reason for resignation from further works on the implementation of the SWD System in the X Enterprise. Another issue was that the software had became not adaptable to the X Enterprise business profile. Conclusions Lack of practical application of the SWD System in the X enterprise caused the need for looking for a new better software tool for inventory control decision support. Some attempts to use artificial neural networks for demand forecasting has been made. They will be discussed in future works of the authors. 4398

5 Abstract In the paper, selected problems of the implementation of the decision support system for inventory control in an international production and distribution enterprise were introduced. The name of the enterprise and the name of the decision support system were coded as X Enterprise and SWD System. Keywords: customer service level, decision support system, inventory management WYBRANE PRBLEMY TOWARZYSZĄCE IMPLEMENTACJI SYSTEMU WSPOMAGANIA DECYZJI DOTYCZĄCYCH STEROWANIA ZAPASAMI W MIĘDZYNARODOWYM PRZED- SIĘBIORSTWIE PRODUKCYJNO DYSTRYBUCYJNYM Streszczenie W artykule omówiono problemy towarzyszące wdrożeniu systemu wspomagania decyzji dotyczących sterowania zapasami w wybranym międzynarodowym przedsiębiorstwie produkcyjno dystrybucyjnym. Nazwa przedsiębiorstwa oraz wdrażanego systemu zostały zakodowane jako Przedsiębiorstwo X oraz system wspomagania decyzji SWD. Słowa kluczowe: poziom obsługi klienta, system wspomagania decyzji, zarządzanie zapasami References [1] Biniasz, D.: Wspomaganie logistycznej obsługi klienta, Wybrane zagadnienia logistyki stosowanej, Tom I pod red. A. Lichoty i K. Majewskiej, Wydawnictwa AGH, Kraków 2013, s [2] Krzyżaniak, S.: Poziom obsługi w gospodarce zapasami, Logistyka, nr 1/2003, s [3] Krzyżaniak, S.: Podstawy zarządzania zapasami w przykładach, Instytut Logistyki i Magazynowania, Wyd. IV, Poznań [4] Michlowicz, E.: Komputerowe wspomaganie zadań operatora logistycznego zaopatrzenie, Wybrane Zagadnienia Logistyki Stosowanej, nr 5/2008, s [5] Prasad, S., Shah, V., Hasan, J.: A Prototype Intelligent Model Management System for Inventory Decision Support, Omega The International Journal of Management Science, Volume 24, Issue 2, 1996, s [6] Sariusz-Wolski, Z., Strategia zarządzania zaopatrzeniem, Agencja Wydawnicza PLACET, Warszawa [7] Sinha, D., Ghiaseddin, N., Matta, K.: Expert systems for inventory control management, Computers & Industrial Engineering, Volume 17, Issues 1 4, 1989, s [8] Wikarek, J.: Aspekty implementacyjne systemu do wspomagania decyzji, Logistyka (dodatek: Logistyka Nauka), nr 6/2011, s [9] Żak, J.: System wspomagania decyzji (DSS) do harmonogramowania pracy kierowców w przedsiębiorstwie transportowym, Logistyka, nr 3/2000, s