CAREER EPISODE -2
Designation : Industrial Engineer
Company : GM Builders
Project Name : Study, Analysis & Implementation of Inventory Control Model using EOQ and ROP
Location : Trivandrum, India
Project Duration: Nov 2013 – Feb 2014
The episode I narrate here is my experience, while conceptualizing, designing and demonstrating an Inventory Control model for GM Builders.
CE2.2 NATURE OF THE OVERALL ENGINEERING PROJECT
This project involved conceptualization, design, development, testing and implementation of an Economic Order Quantity (EOQ) and Re-order Point (ROP) Inventory model. Extensive research on EOQ and other forecasting techniques were performed and historical data was collected and analysed to build a successful system for managing inventory.
CE2.3 OBJECTIVE OF THE PROJECT
The objective of the project was to study and analyse current forecasting model and to implement an inventory control model to help solve the issues that came with the older methods of forecasting. As a result, an Economic Order Quantity (EOQ) and a Reorder Point (ROP) was studied and analysed in detail and later on implemented along with two forecasting techniques to help reduce product stock outs.
CE2.4 NATURE OF MY WORK AREA
I was involved in the rigorous procedure of various system evaluation, literature research, system selection, testing of system across various test conditions and deployment.
Cost analysis of various alternative systems.
Design, development and testing of EOQ model for Inventory management and control.
Design, develop and testing of material requirement planning.
CE2.5 ORGANIZATIONAL STRUCTURE CHART
The stake holders in the project were CEO, Purchase Manager, Store Manager, Sales & Marketing Manager, and Myself, Industrial Engineer.
CE2.6 STATEMENT OF YOUR DUTIES
I coordinated with the purchase and sales departments to understand the requirements for the concept of the project and also visualize a solution
I created a requirements matrix to capture all the requirements of the key personnel involved in the project and to track and take it to closure
I conducted extensive research on present systems that were similar to what we wanted to achieve
I shortlisted various systems & methods that were similar to what we wanted to achieve with different limitations and features
I put in all the effort required to identify, get the information required and test a few systems that were similar
I conducted extensive research on the systems and their way of working, their features, short comings and areas that we could improve upon.
I put together the final framework that would help build the company a reliable and efficient inventory control and forecasting model and help reduce costs and improve its business efficiency and competitiveness.
c) Personal Workplace Activity
CE2.7 TECHNICAL DETAILS OF THE WORK
My technical responsibilities and the technical details of the project are explained in stages.
i. Requirements Collection and Discussion with Customer
Various requirements of the project and product were discussed over extensive meetings with the concerned departments in the company mainly the Purchase Department and the Sales & marketing department. A high level requirements document was created to capture the meeting points and critical requirements along with important milestones and delivery dates. Planning for the concept of the system, various blocks of the same, different teams to be involved, necessary tools and components were discussed.
ii. Conceptualization of Forecasting & Inventory Control System
The forecasting model in place brought problems due to ineffective forecasting that resulted in product stock outs and loss of sales. The forecasting method used was the rolling average method, which takes previous historical demand and calculates the average for the next forecasting period. By doing this method, variability is not taken into consideration due to the historical demand which can cause inaccurate forecasting results. Essentially, the purpose of this project was to recommend alternative ways to help reduce the stock outs by providing a more effective forecasting method along with an Economic Order Quantity and Reorder Point model. In the approach of doing so, only a few top selling products that range from seasonal to annual sales was analysed from their previous 2 years or 8 quarters. In addition, a cost estimate was calculated to see the significance between both current model and recommended model.
iii. Study on EOQ and ROP model
An Economic order quantity would assist in deciding what would be the best optimal order quantity at the company’s lowest price. Similar to EOQ, the reorder point will advise when to place an order for specific products based on their historical demand. The reorder point also would allow sufficient stock at hand to satisfy demand while the next order arrives due to the lead time. The formulas for EOQ and ROP was used to create some mock illustrations with the available data and build how the system would indeed help the company achieve its competitive edge.
iv. Design and Implementation of the System
The charge controller circuit for Bio-mechanical energy generator system was to be designed to meet following requirements:
The formula for EOQ used was Q= ?((2*D*S)/(H*C))
Q= the EOQ order quantity. This is the variable that had to be optimised. All the other variables were fixed quantities.
D= the annual demand of product in quantity per unit time.
S= the product order cost
H= Holding cost per unit as a fraction of product cost.
When the stock levels reach a certain point, new order need to be placed to replenish stock levels. This level is called ROP. Reorder Point = Daily Usage * Lead time + Safety Stock. In order to incorporate seasonal trends in different products, a forecasting method like MRP, Material Requirement Planning has been used. The ordering cost, purchasing cost and unit cost of the product was taken into account along with the historical data to determine the total annual cost of each product. EOQ and ROP of each product were calculated once required data was collected.
Then Seasonal Index and moving average was used as the forecasting techniques to develop demand of each product and based on that EOQ and Reorder point levels could be calculated.
An excel spreadsheet was used to see the various products behaviour with respect to their historical demand. To view demand behaviour of each product, a graph was used to plot the demand against each product using the necessary data.
Once the total cost was produced for all various products using the method that it used and the EOQ model, the cost estimates were calculated to show how using an EOQ model can minimize the cost of inventory and the amount of cash tied up in the inventory balance.
CE2.8 APPLICATION OF MY ENGINEERING KNOWLEDGE AND SKILLS
I used my engineering knowledge and experience to study and understand the various design requirements on the project.
I used my knowledge and skills in conceptualization of the project and the various components of the same.
I used my knowledge of simple moving average, weighted moving average and seasonal index to study the various forecasting techniques that laid the foundation towards building the model
I applied my skills in Demand forecasting and analysis to build the inventory management system that would use EOQ and ROP model
I used my skill in Inventory management to better understand the various drivers in inventory control which helped build the framework towards the proposed model.
I used my knowledge in Independent demand inventory to use the perpetual system for managing inventory.
I used my knowledge and experience to successfully test out the pseudo model and integrated the system with its various sub systems.
CE2.9 TASKS DELEGATED TO ME AND THEIR ACCOMPLISHMENTS
I was assigned to meet with the key personnel of various departments to completely understand the requirements and expectations.
I achieved the same by clearly capturing all the requirements and expectations in a track-able requirement matrix that was used to bring all the requirements to its logical closure.
I was assigned to understand the concept requirements and come up with a system design.
I achieved the same by coming up with a concept to understand the various inventory models and how these models would interact in different environments.
I was assigned the task of understanding errors in forecasting and how it would affect the proposed system.
I achieved the same by using my knowledge in mean forecast errors and mean absolute deviation to show how the system would behave in such conditions.
I was assigned the task of designing an inventory control model.
I achieved the same by designing an inventory control model from the scratch after researching various systems, existing methodologies and careful selection of components.
I was assigned the task of putting together a setup on how to model the system.
I accomplished the task by selecting the various products that the company had up in inventory for the past two years and selecting only a handful few which had the most demand and was most selling. The necessary data was collected and an EOQ and ROP model was built for these products.
I was assigned the task of maintaining documentation for the entire project.
I accomplished this task by maintaining all the documents related to the project in an organized folder structure that was easy to follow and locate the necessary documents. I created clear and precise schematics needed to capture the design through various phases of change and updation.
I was assigned the task of interacting with the key personnel in each department, the other players in business and in house teams.
I accomplished this task by organizing regular meetings with all the concerned parties to review and update on the progress of the project, escalate outstanding issues and seek approval, conduct reviews of the design and other artifacts at critical junctures of project.
CE2.10 TECHNICAL DIFFICULTIES/PROBLEMS AND ITS SOLUTION
Company stock outs were occurring and product behaviours weren’t properly understood.
By making use of Simple moving average and seasonal index for different product categories, forecasting was performed for these categories. For the forecast to have some sort of variability, for each period, the mean average deviation of demand was determined in the simple moving average case. The lowest mean average deviation would provide the most accurate forecasting. Seasonal adjustments were made to products whose demand was sensitive to different time periods along the year. By making use of a regression line, demand of each product could be calculated by using demand and time period data. Thus, the forecast of different categories of product was performed to understand product behaviour and to reduce stock outs.
There was lack of collaboration and input in the forecast management process.
As these issues were happening, a forecast collaboration meeting had to be conducted for the stake holders to review, adjust and approve forecast from time to time. Over riding the forecasted value was to be performed if the system was showing some critical errors. Forecast accuracy measures were deployed in the system to inject accountability in the whole process.
The products were all managed in a particular manner during the start of the system which didn’t accommodate changes in demand, how much to stock etc.
The concept of safety time was introduced along with the safety stock that anticipated demand and automatically increases safety stock.
CE2.11 STRATEGIES DEVISED BY ME
I made a high level design and data document to help the department members understand and visualise the concept of EOQ and ROP so to having a better inventory management system.
I strategized the design and development of the EOQ model that provide the company with cost savings by reducing inventory investments.
I came up with design and development of reorder point and safety stock in the system to show how these methodologies need to be incorporated in the system to shield the company from stock outs and backorders.
I strategized the design of the system by collecting and analysing data from 2 years to calculate the ordering cost, purchase cost and unit cost for the selected product and thereby calculating total annual cost of each product.
I used the concept of the simple moving average and seasonal index as forecasting techniques towards building the EOQ model
CE2.12 WORKING WITH OTHER TEAM MEMBERS
Working with the purchase manager, store manager and sales manager gave me the perspective of the entire system since I am an Industrial engineer.
The project success was the result of team effort of our company and the various personnel. The system engineers’ involved in the project helped incorporate the system into their existing framework to demonstrate the efficiency and effectiveness of the same.
CE2.13 MY VIEW OF THE OVERALL PROJECT
Exposure to fundamental research based conceptualization and exhibiting the demonstrable proof of concept were the highlights for me personally.
Literature research, product selection, evaluation, comparison of existing systems, their efficiencies and effort to better them along with lower cost were significant challenges and opportunities for learning.
CE2.14 HOW THE PROJECT FARED IN MEETING THE GOALS
All the requirements were either met or exceeded and a number of unique and efficient yet simple low cost systemic designs were incorporated.
The concept was brought to a practicable form with the help of my team and demonstrated to various stakeholders of the project and received acclaim about the use cases, simplicity, and efficiency and how it made the business reduce costs associated with inventory.
CE2.15 MY PERSONAL CONTRIBUTION TO THE PROJECT
I carried out interactions with key stakeholders for technical requirement understanding, data analysis, prototype model testing and technical reviews.
I designed & developed the concept of building an EOQ and ROP model to build better inventory management, reduce costs and enhance business edge and competitiveness.
I created and maintained the requirements matrix capturing all the requirements and ensured they were all met or exceeded at the end of the project.
I conceptualized and designed the system for continuous data acquisition of the critical parameters of the system for future analysis and calculations.