ONTROLLING MATERIALS AND SPARE PARTS AT A REFINERY

This is a topic in industrial engineering
for a masters level project in a supply chain class

overview

At this refinery, a warehouse controls inventory using policies initiated by a global contracting and procurement management team. This could be classified as a topdown management system which may not be the optimum management style for inventory control at a refinery. The supply chain system in place also employs the use of an external third party inventory manager, and insight into the inventory managed contract will be pursued to aid in the identification and analysis of areas needing improvement. Preliminary assessment of the existing demand streams however does indicate long lead items as well as fast moving spare parts and materials do not appear to be an area of focus for the contract referenced above.

-I will like at to figures.
the model should show how the EOQ equation can be used to minimize inventory carrying costs
Please select one part i.e a motor which is considered critical to the plant operation and show how the ware house can determine the optimum stocking policy for this spare part. you are free to use arbitrary values to illustrate this in the model.

Existing Procurement philosophy
Onsite warehouse stock items frequently run out due to their fast moving nature and the inability to accurately forecast demand. Long lead items are kept onsite to ensure availability when needed. This policy results in an however increaseds the risk of items becoming obsolete, as well as the increasing the cost for storage space in use, associated cost for periodic on shelf conditioning, and tied down capital. Past efforts at preventing the stock out of fast moving items have involved the use of basic (r, Q) inventory model. The standard EOQ equation was used in some cases to determine a reorder quantity. The expectation was that this approach would help mitigate the stockpiling of excess on hand inventory. Similarly, the reorder point was arbitrary fixed to avoid stock outs. This could be considered to be a continuous inventory review system, where the goal was to minimize on-hand inventory, as well as stock outs. This approach appeared to have solved yielded some gains, the issue of stock outs on fast moving warehouse items was alleviated, but it has how ever creathe stockpiling of surplus or excess on hand inventory did not appear to have been mitigated satisfactorily.
The inability to accurately forecast demand stems from the unavailability of adequate demand data over time. This makes it difficult to accurately determine acceptable lead time on parts for use in an optimum inventory decision making process. The existing procurement system uses a buying group to process requisitions also known as work orders. These entries are then converted into purchase orders and issued to the target suppliers. In the existing system, maintenance staff and other technical support personnel are authorized to purchase spare parts and materials as well. This could be viewed as circumventing the official procurement work process as valuable data on demand goes unrecorded.
The scenario given above creates inconsistencies in the expected demand seen by the procurement group. In addition an attempt to standardize procurement across the organization may adversely affect the speed and effectiveness of maintenance operations. For this reason it is more difficult to use demand forecasting as a tool for determining an optimal reorder point or quantity.

Research Goal
We will attempt to use an optimal inventory control policy to minimize the costs associated with the supply chain management of spare parts. To achieve this goal, this research work will be broken down into segments that identify, analyze and propose solutions that reduce inventory costs. This approach has been outlined below.
a? Identify and define the spare parts supply chain
To gain insight into the various streams of demand that exist, a clear understanding of the relationship between the end user maintenance department, the central warehouse and vendors needs to be understood.

The supply chain network as is will be defined to help identify the costs associated with spare parts purchasing. Gaining insight into the existing supply chain will also help identify the costs incurred throughout the supply chain system.

a? Develop an optimum inventory control model
The performance of the central warehouse is tied to how efficiently part orders area fulfilled. Every stock out has a negative impact on maintenance and production schedules. Stock outs also incur avoidable costs that reduce profits and increase the cost of doing business.

A model will be developed based on actual or similar supply chain parameters to aid the implementation of an inventory control policy that
i § Minimizes costs
i § Minimizes on hand inventory
i § Minimizes Shortages

Problem Statement
Reduce inventory carrying cost, and eliminate the adverse effect of excessive inventory on the organizations bottom line through establishing an optimal inventory policy for the warehouse.