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Supply chain collaboration for maintenance spare parts at DAF Trucks N.V.

Verlinden, Jeroen M.W. (2012) Supply chain collaboration for maintenance spare parts at DAF Trucks N.V.

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Abstract:This report describes the research carried out for the department Maintenance Material Planning at DAF Trucks N.V. The task of this department is to ensure, at minimum costs, maximum availability of spare parts used for both corrective as preventive maintenance for the entire production facility at DAF Eindhoven. For that purpose there is a spare part inventory consisting of about 28.000 SKU’s, with a total value of 17.3 million Euro. The inventory is controlled with help of the ERP software SAP. Once a week the inventory levels are checked with a MRP run and ordered up to a level indicated by DAF as the safety stock. A safety stock as is normally used in inventory control is not used at DAF. DAF realized that supply chain collaboration could possible increase the efficiency of the inventory control and initiated this assignment to research the possibilities. The research assignment that followed from this is: “Optimize spare parts inventory control at DAF Eindhoven by improving collaboration with suppliers in the supply chain such that spare part inventory costs (consisting of order-, transportation-, handling-, inventory carrying- and information-costs) decrease, while maintaining or improving the item fill rate. Develop an implementation plan for one or more article groups / suppliers.” In this report an overview is given of the most common supply chain collaboration forms described in literature and how DAF can use them in order to control its inventory in a more efficient way. Each of these forms contributes to different objectives and has other characteristics, and so have the articles that are suitable for each of these forms. In order to identify the right article for the right supply chain collaboration form, an allocation framework is used which analyses the spare parts on the dimensions: - Value: The purchase price of the article. - Consumption: How often the article is used over a certain time period. - Response time: The time that is allowed to replace an article that has broken down. From this analysis follows if an article is suitable to be part of a supply chain collaboration, and if so, if its fits best to vendor managed inventory, consignment inventory or supplier owned inventory. From this data analysis it appeared that, based on consumption data over the last four years, half of the SKU’s in current inventory was never consumed during this period. Another noticeable factor is that although the articles in the inventory are actually spare parts for corrective maintenance, they are often also used for preventive maintenance in the same manner, without prior reservation of the SKU. From the research appeared that supply chain collaboration for DAF can best be based on a dyadic approach (collaboration with an immediate partner). Selecting a partner must be done carefully, where the most important factor is that DAF already has a good relationship with that partner and also trusts him. To make the collaboration most effective it is further important that the supplier with who will be collaborated represents a large inventory value, must be a financial healthy company and finally must be situated within 250 km from DAF. The supplier Scheib Elektrotechnik GmbH was with help of these criteria selected as the partner for SCC. Scheib mainly delivers electrical- motors and modules to DAF and with a total value of 1.14 million euro worth of articles in DAF’s current inventory, it is the largest supplier for DAF. To successfully implement supply chain collaboration there are many pitfalls to be avoided. Therefore DAF has to establish visibility in their inventory to the supplier, cooperate with them to achieve higher efficiency throughout the whole supply chain and an important success factor is management support for this collaboration. Before the supplier and DAF start with the collaboration they will have to agree on ownership of transfer, payment terms, selection of eventually third party logistics providers, service levels (fill rate), processes to be followed, lead times of delivery and communication ways. All these issues (except for the last one) have to be stipulated in a contract. On communication ways can be decided via informal agreements since research shows that how information is exactly shared is not important. To encourage both partners to live upon the agreements, penalty costs for underachieving must also be stated in the contract. For calculating the potential savings of supply chain collaboration, order- and handling costs had yet to be calculated since this figure was not available at DAF as such. From this it appeared that order costs are € 105,- per order and handling costs are € 35,- per order line. Inventory carrying costs are defined by DAF as being 10% and are also used as such in this report. Thereby are also the transportation costs considered, which consists of three scenarios depending on the response time of the article concerned. Further are the information cost considered in case the supply chain collaboration form considered requires intensive information exchange. A case study was performed to evaluate the potential savings that supply chain collaboration can achieve. First a supplier has to be selected, which was the supplier Scheib. The articles of that supplier were then analysed with the allocation framework and showed that about half of the number of SKU’s fulfilled the criteria for supply chain collaboration. Without considering the fee that the supplier will charge for collaboration, it resulted that consignment inventory contributes to the biggest saving, 380 euro per order. Potential savings with vendor managed inventory are 60 euro per order, while supplier owned inventory does not result in any savings. With supplier owned inventory costs per order increase with 20 euro since this segment contains high value articles with high consumption rates that are located at the suppliers’ site, which results in high transportation costs. This can also be computed with the decision support tool, with this insight in potential savings DAF can decide how much they would pay to the supplier for supply chain collaboration. Since the potential savings strongly depend on the articles, a second case study was conducted for the largest five suppliers. This confirmed that consignment inventory is the most beneficial concerning the potential savings (220.000 euro annually). But when the fees for the suppliers will be included, the savings will be probably only be modest. Although supply chain collaboration does not contribute to significant inventory cost savings for DAF, they are advised to implement a consignment inventory collaboration with the supplier Scheib. The possibility for DAF to make us of the knowledge and services of the supplier would be of great help by improving the efficiency of the current inventory control at maintenance material planning, especially for the articles with a low consumption rate which cause many difficulties at the moment (such as having relatively many non-movers on stock). An implementation plan discussed in this report helps to implement a consignment inventory collaboration with Scheib.
Item Type:Essay (Master)
Clients:
DAF Trucks N.V.
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
Link to this item:http://purl.utwente.nl/essays/61347
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