Inventory Optimization by Standardization & Eliminating Duplication

Dissertation Project of Aknath Mishra EMBA 2101

CAST HOUSE

AGENDA

• Dissertation research project • Supply chain Management • Plant • Aluminium Industry • Kraljic portfolio model • Savings scope with Recommendations • Way forward • SCII Form

INTRODUCTION

Plan A- Dross Management System, &

Plan B- Inventory Management system.

Duplication Non-standard Inventory Inventory management Research study

Background - EMAL • A government organization • 50-50 joint venture with DUBAL and

MUBADALA • Produced its first metal in late 2009 • US$ 5.7 billion phase-1 fully operational • 718,000 tones of primary aluminium per

annum with phase 1. • 1.3 metric million tones by the end of 2014

upon completion of Phase II

ALUMINIUM PROCESS FLOW

PROCESS FLOW

What makes EMAL different?

o UAE’s industrial flagship project o largest single site Aluminium smelter in

the world map o DX Reduction Cell Technology o 280 customers in 36 countries with high

quality aluminium o traded on the London Metals Exchange o vision 2030 with chain of downstream

industries

Why the topic?

Everything Can Be Improved Wastage elimination Be the cost competitor Maximization of customer satisfaction Enhancing operational efficiency by I & OE Provide cost effective procurement, warehouse and

logistic services to internal customers in EMAL using world class practices in each area.

PROBLEM STATEMENT

Due to material duplication & improper description , Cast house and Supply chain facing following problems-

Excess Inventory

Identification issue by user

Proof of Duplication exist

OEM leftover into warehouse

RESEARCH OBJECTIVES

Duplication in System

Removing duplication

Cataloguing

Vendor development

Align it with existing ERP system

PROJECT SCOPE

Non –critical materials

Duplication elimination

System in place

Value added chain- vendor

Time reduction in procurement cycle

Cost saving

Operational efficiency

Portfolio analysis for NC & Leverage

RESEARCH METHODOLOGY

◊ Secondary Research

◊ Primary research

◊ Analysis and Interpretation

LITERATURE REVIEW

Introduction

• Spare parts management plays an important role for achieving the plant availability at minimum cost.

• Spare parts required for repair and refurbishment of plant equipment for maintenance purpose.

• The objective of spare parts management is to ensure the availability of spares for maintenance & repair of the plant as & when required at minimum cost.

Problem to organize spare parts

• There is an uncertainty of spare parts requirement & also the quantity of its requirement.

• Spare parts are not easily available in the market because they are not fast moving items.

• The number & variety of spare parts are too large, so control is more tedious.

Systematic action to manage spare Parts

• Identification of spare parts

• Forecasting of spare parts requirement

• Inventory analysis

• Spare parts inspection

• Reconditioning of spare parts

• Computer applications for spare parts management

Inventory Analysis

For successful spare parts management, it is essential to analyze the spare parts inventory based on the frequency of issues, the annual consumption value, the criticality, the lead time and the unit price.

Inventory Analysis Methods

Commonly used Inventory Analysis Methods

• FSN Analysis

• SDE Analysis

• VED Analysis

• ABC Analysis

• HML Analysis

FSN Analysis

This analysis based on Frequency of Issues/Uses of spare parts.

F stands for fast moving items

S stands for slow moving items

N stands for non moving items

SDE Analysis

This analysis based on lead time of spare parts.

Scarce(S): Imported items & Lead time is more than six month.

Difficult(D): Imported items & Lead time in between fortnight & less than six month.

Easily available(E): Items which are easily available Less than a fortnights lead time.

VED Analysis

This analysis based on the criticality of spare parts.

Vital(V):Non availability of items cause high production down time &high cost will involved on emergency basis.

Essential(E): Non availability of items cause moderate production loss.

Desirable(D): Item will be Desirable if the production loss is not very high due to its non availability.

ABC Analysis

This analysis based on consumption value

Class A: 10% of total spares contributing towards 70% of total consumption value(High value items)

Class B: 20% of total spares contributing towards 20% of total consumption value(Medium value items)

Class C: 70% of total spares contributing towards 10% of total consumption value(Low value items)

HML Analysis

This analysis based on the unit price of spare parts

High Cost(H): Items whose unit value is very high.

Medium Cost(M): Items whose unit value is medium.

Low Cost(L): Items whose unit value is low.

Other Inventory Analysis methods

• Capital spares : The stock out cost of such spares is very high & unit cost is also very high.

• Insurance spares: It is an insurance against such failures for which the down time costs are very high.

• Overhaul spares: This spares we must replace during the equipment is dismantled.

• Wear & Tear spares: This spares need to replaced after define number of equipment operation.

∞ SUPPLY CHAIN

∞ KRALJIC MODEL

∞ VENDOR MANAGED INVENTORY

∞ GLOBAL ALUMINIUM SCENARIO

∞ ALUMINIUM SMELTING PROCESS

∞ DX-TECHNOLOGY

∞ ALUMINA EXTRACTION PROCESS FLOW

∞ KIZAD & DOWNSTREAM INDUSTRY

FINDINGS

Non-Critical: - 251277X50% = $ 125638 Leverage: - 700373X25% = $ 175093 The total savings potential for Cast House Maintenance out of the research project, when it will be physically executed on ground level, is- Calculated TOTAL direct SAVINGS is 10% minimum as per the value based on each items.

$300731

FINDINGS(Contd.)

INVENTORY CATEGORY NUMBERS OF COMPONENT VALUE IN $

Minimum stock level components 1472

754656 Zero demand components for next 5

years 870

Categorized as per Kraljic matrix into

59 groups 4929 2336664

TOTAL 7271 3091320.09

RECOMMENDATIONS

OVERVIEW

Duplication elimination Standardization Vendor development Continuous improvement Discipline for sustainability

Managerial Implications

Duplication Elimination & Standardization will take care by SPA and his task force designed as per SCII form and its guidelines. Vendor development for existing registered suppliers by designed programme at EMAL training center and call of contract. Continuous improvement through SCII design. Discipline through existing 5’s practices.

WAY FORWARD

The system of elimination and standardization process must follow the SCII guidelines and following time line- Time frame: Task force formation 1st December’ 2012 Data analysis 5th December’ 2012 Standardization 16th December’ 2012 Elimination & IT work 16th March’ 2013 Training and vendor development 1st April’ 2013 Systematizing & closure 26th May’ 2013

CONCLUSION

The identification and duplication elimination of inventories inside the inventory management system is feasible with strong management support with a cautious phase wise systematic approach.