Development of a hybrid framework for inventory leanness in Technical Services Organizations

Abstract

Inherent uncertainties in demand and supply make it problematic for supply chains to accomplish optimum inventory replenishment, resulting in loss of sales or keeping excessive inventories. To cope with erratic demands, organizations have to maintain excessive inventory levels, sometimes taking up to one-third of an organization’s annual budget. The two most pressing concerns to handle in inventory management are: how much to order and when to order. Therefore, an organization ought to make the correct and timely decisions based on precise demand information to avoid excessive inventory accumulation resulting in enhanced competitive advantage. Owing to the significance of inventory control and analysis, this paper reports on developing and successfully implementing a hybrid framework for optimum level inventory forecasting in Technical Services Organizations. The proposed framework is based on a case study of one of Pakistan’s leading Technical Services Organization. The paper presents a statistical analysis of historical data and a comprehensive fault trend analysis. Both these analyses set a solid foundation for the formulation of a comparative analysis matrix based upon price and quantity based analysis of inventory. Finally, a decision criterion (Forecasting Model) is proposed using three primary forecasting techniques with minimum error calculations. The study’s finding shows a forecast error of 142.5 million rupees in the last five years, resulting in the accumulation of more than 25 thousand excessive inventory stock. Application of price and quantity based analysis identifies that 65% of the annual budget is significantly dependent upon only 9% (in terms of quantity) of "High Price and Small Quantity" Items (HS). These HS items are forecasted through three different forecasting methods, i.e., Weighted Moving Average, Exponential Smoothing, and Trend Projection, with Minimum Absolute Deviation to significantly reduce the forecasting error while predicting the future required quantity. The research work aims to contribute to the inventory management literature in three ways. First, a new comparative analysis matrix concept for identifying the most critical items is introduced. Second, a Multi-Criteria Forecasting Model is developed to capture a wide range of operations. Third, the paper suggests how these forecasting criteria can be integrated into a single interactive DSS to maintain optimum inventory level stock. Even though the DSS framework is based on data from a single organization, the application is expected to manage inventory stock in a wide range of manufacturing and services industries. This study’s proposed hybrid framework is the first of its kind that encapsulates all four dimensions of inventory classification criteria, forming a multi-criteria hybrid model within a DSS framework.