eThesis - School of Business electronic theses

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OBJECTIVES OF THE STUDY

The foundation of this study is to understand the procurement challenges that the case company Studiotec Oy and its sister company Soundtools Oy are currently confronted with. Moreover, this study aims to develop procurement directions in order to increase inventory turnover and improve customer satisfaction whilst releasing working capital.

Academic literature is filled with recommendations on how to profile inventories into classes, on forecast approaches and with inventory control policies. However, a clear link between classes and different forecast systems and replenishment systems does not exist yet. Therefore, the aim of this study is to develop a practical SKU classification framework that guides the inventory decision and aids in the selection of the most appropriate combination of forecast approach and replenishment system. This study furthermore tries to assist the responsible purchasing employees to reconsider customary purchasing manners and enables management to think of the fresh ways of inventory management.

ACADEMIC BACKGROUND AND METHODOLOGY

In order to classify items and to test the designed framework, the sales and order data from the beginning of 2010 until September 2012 were analyzed. The empirical recommendations are based on heuristics and cost comparisons that were carried out for 90 items. Company's top management, product managers and the logistics manager who are responsible for making the purchase decisions were interviewed in order to get a better overall understanding about the situation, including the entity being evaluated and the circumstances. The inventory management literature was thoroughly reviewed as to select the best classification factors is the first step, followed by determining the most suitable forecasting methods and inventory control policies for the different classes.

FINDINGS AND CONCLUSIONS

The pivotal reason for increased inventory lies on demand intermittence and erratic. In addition, product managers unjustifiable large order quantities played a big role. By way of the new framework, items were categorized into six classes based on their contribution to net sales and demand frequency. Based on academic research, an optimal forecasting method and an inventory replenishment system were addressed for each class. Empirically optimal procurement tool differed from theoretical suggestion. The study suggests that the case company should abolish stocking items sold less frequently than every three months. This way, the case company could decrease its inventory value by 20 % and dramatically deplete the risk of obsolescence. Moreover, the new procurement tool embedded in product life cycle directs on overall procurement decisions.