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BOSCH INDIA LTD
Safety Stock And Material
Management.
Mahendra S Kirtane
`
ABSTRACT
The study was carried out at Bosch Ltd., Nashik, plant 101 MFH
and 102, TEF Department with the aim to study material management
and concept of safety stock keeping on industrial level. The study was
done about current process of material management techniques along
with processes of safety stock keeping on regular basis.
Various management theories related to material management and
safety stock keeping discussed in material management such as V-E-D,
A-B-C, S-D-E, H-M-L, GOLF Analysis, S-OS Analysis, FSN theory,
XYZ analysis were studied.
The project includes a detailed consideration of the factors
affecting the material management of any industry. It also throws light
on various factors like Lead Time, Lead Time Consumptions, Reorder
level, safety- stock and inventory management. A combined approach of
various material management theories were studied to give improved
methodology.
`
ACKNOWLEDGEMENT
It was indeed a great pleasure to get an opportunity to
work with BOSCH Ltd., Nashik for graduate training project
which helped to gain invaluable industrial experience. It gives
me an immense satisfaction in presenting my project report on
“Safety Stock in Inventory Management”. With respect and
deep gratitude I wish to express my special thanks to Mr.
Anurag Mehra (Manager, TEF-32) and Mr. S.V. Chingale
(Manager, TEF-32).
I am very much thankful to Mr. Divakar Rokade, Mr.
S.V. Kale (Consultant, Spares & Stores Management
CRIEOU),and Ms. Preeti ___ Mr. Gawane (Operator,
SQF) for their guidance at each stage of the project. Special
thanks to all the employees of the BOSCH Ltd., Nashik for
their kind support and co-operation throughout the project.
Moreover this guidance has not only kept me on track, but also
inspired to take up any Herculean task in future.
`
INTRODUCTION
Robert Bosch GmbH is widely known the world over as a pioneer
in automotive technology for 120 years. The name Bosch is synonymous
with innovations in automotive technology, industrial technology and
consumer goods and building technology. Founded in 1886 in Germany
as a „Workshop for Precision Mechanics and Electrical Engineering‟ by
Robert Bosch, Bosch is today the largest automotive technology supplier
in the world with a global group turnover of Euro 45 billion in the year
2008. Interestingly, every year, Bosch files on an average over 3,000
patent applications across the globe.
Bosch is now present in every continent with more than 300
subsidiaries, associated companies and 12,000 service center‟s located in
over 150 countries. Bosch operates 260 manufacturing locations
worldwide. Of these 200 are located outside Germany in Europe, North
and South America, Africa, Asia and Australia.
In fiscal 2008, Bosch employed more than 281,000 people
worldwide. The special ownership structure of the Bosch Group
guarantees it financial independence and entrepreneurial freedom. The
structure also enables the group to undertake significant up-front
investments for the future and do justice to its social responsibilities in a
manner reflecting the spirit and will of its founder. Ninety two per cent
of the shares in Robert Bosch GmbH are held by the charitable Robert
Bosch Foundation.
Bosch India is regional branch of the Bosch Group, one of the
world‟s biggest private industrial corporations. Headquartered in
Stuttgart, Germany, the Bosch Group has approx. 281,000 employees
worldwide, and generated annual sales revenue of 45 billion Euros in
2008. In India, the Bosch Group has about 10,108 employees, and in
business year 2008 achieved total consolidated sales of Rest. 45,416
million.
The Bosch slogan „Invented for Life‟ is part of its long tradition,
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Through which it communicates the Group‟s core competencies and
Vision that includes technological-leadership, modernity, dynamics,
quality and customer-orientation.
This report gives light on material management and safety stock
which are employed in BOSCH Ltd. Nasik plant. Material as a prime
asset of any industries, material management and control over the
material gives profit and confidence in organization. Material
management helps is avoiding losses in material and control over
material helps in reducing the cost which directly represents the
effectiveness of the system.
Material management and safety stock are important as it gives
idea about inventory investment to be done, average stock to be
maintained, reorder level and thus avoids any blockage in production.
Effective methods employed in material management and safety stock
gives higher profit and cost cutting improves the performance of the
plant. Material management helps in saving the money in material which
can be invested elsewhere to gain more profit. Material management
covers all aspects of material and their supply, which are necessary for
converting raw materials into finished product.
Safety stock is the level of stock that has to maintain to avoid
stock-out. Safety stock avoids the any blockage of production process.
Safety sock also helps in dealing with various problems regarding
procurement process, lead time irregularities, polices of suppliers and
sources etc. safety stock helps in dealing the with uncertain breakdown
of the parts and thus gives continuous and quality production process.
It also gives the idea about reorder level of certain stock and also helps
in determining the reorder time with correct quantity.
Material flow
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Materials are the key resources in an industries enterprise.
Shortage of materials affects the production, thus no production is
possible without materials. Materials also form a major constituent of
the cost of the product and therefore proper control over their
procurement, storage, issue, movement and consumption is necessary.
Material management covers all the aspects regarding material.
Material flows from stock raw material to finished product through
various production stages with inspection and quality checks to yield
quality production. Fig.1 gives the idea about the flow material in an
industry.
Fig.1 material flow
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Material flow diagram shows the flow of material from the
resources to the finished product. Material is procured at inventory and
thus from inventory through various process, material is converted into
finished parts and from finished parts to finished goods which is ready to
distribution. Materials are key to the business and material flow shows
the effectiveness of the management. Material flow is control to yield
higher returns and to stabilize the production.
Classification of materials is the process of grouping of items into
few categories, based on set criteria.
Classification on the basis of stage of conversion process.
In a manufacturing organization, store materials can be broadly
classified into direct and indirect materials. Direct materials in turn
can be further classified into raw materials, work-in-process,
finished parts and finished goods.
Classification on the basis of the nature of the materials.
a) Raw materials
b) Consumables
c) Chemicals
d) Inflammable items
e) Furniture
f) Perishable materials
g) Packaging
h) Empties
i) Supplies (indirect materials)
Classification on the basis of usability of materials a) Serviceable and unserviceable materials
b) Semi-finished and finished materials
c) Dead stock items
d) Obsolete items
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MATERIAL MANAGEMENT
Material management according to Bethel and others is a term used
to connote “controlling the kind, amount, location, movement and
timing of the various commodities used in and produced by the
industrial enterprise.” It involves all activities concerning materials
right from the time the need for the materials is established until they are
issued to the production.
Material management is concerned with material planning, market
research for purchase, procurement of materials and purchasing,
receiving, store keeping, warehousing, inventory control, packaging and
packing of materials, materials movement, disposal of scrap, surplus and
obsolete materials.
Functions Of
Material Management
Material
Planning Purchasing
Inventory
Control
Store
Keeping
Store
Accounting Transportation
Disposal of
surplus materials
Material
Economics
Waste
Management
Fig.2
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AIM OF MATERIAL MANAGEMENT
Material management is aimed to get:
Right quality of supplies
Right quantity of supplies
At the right time
At the right place
At the right cost
There are ten objectives of material management:
i) To maintain a steady flow of materials to ensure uninterrupted
production.
ii) To adopt cost reduction techniques like value analysis, variety
reduction, JIT, MRP etc.
iii) To ensure consistency of quality by providing right material, of
right quality, in right quantity and at right time.
iv) To reduce inventory investment.
v) To improve corporate image by maintaining good buyers-sellers
relations.
vi) To maintain good records of purchase, stores, traffic etc. to
eliminate the possibility of corruption.
vii) To preserve materials in stock so that losses due to pilferage,
deterioration, obsolescence etc. are kept at minimum.
viii) To reduce operating cost by minimizing wastage and improving
productivity of materials.
ix) To improve competitive strength of the firm by producing the best
quality products using quality materials at the lowest possible cost.
Material management is discussed in subsequent chapters with
different aspects to get clear idea of its working.
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STORE MANAGEMENT
Storekeeping is a service function which deals with the physical
storage of goods under the custodianship of a person called storekeeper
or store-controller. Goods stored may be either, “stores” or “stocks”. Un-
worked materials or raw materials are usually referred to as “stores” and
the place where they are kept is known as “store-room”. Finished
products ready for shipment are usually called as “stock” and are housed
in a place called as “stock-room”.
Store management are “ to receive materials, to protect them, while
in storage, from damage or unauthorized removal, to issue the materials
in right quantities, at right time, to the right place and to provide these
services at the least cost”.
Functions of stores:
a) Identification is the process of describing, classifying and
codifying all the items that require to be stocked.
b) Receipt is the process of in-warding all required materials,
forwarding by external sources or internal manufacturing, after due
to verification of quality and quantity.
c) Inspection is the verification of all incoming materials for quality.
d) Storage is providing for the right and adequate storage and
preservation to ensure that the stock do not suffer from damage or
deterioration.
e) Identification and location of stock.
f) Security of stores.
g) Stock control is to ensure adequate stock to serve the production
needs and keeping investment within desired limit.
h) Issuing and dispatching.
i) Stock records maintaining.
j) Stores accounting
k) Stock verification
l) Surplus stock management
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INVENTORY MANAGEMENT
Inventories represent the aggregate of those items which are either
held for sale in the ordinary course of business or are in the process of
production for sale or are yet to be utilized in the production of goods
and services.
The main items of inventories are:
1) Raw materials
2) Finished parts
3) Work-In-Process
4) Finished goods
5) Tools
6) Supplies
7) Machinery spares
Firm carries inventories to deal with various factors and give higher
returns. There are seven major reasons why firms carry inventories:
a) To economies on buying/manufacturing cost:
A certain amount of fixed cost-ordering cost or set up cost is
incurred, whether an items is purchased from outside a
suppliers or manufactured at the company‟s own plant. To
buy or to manufacture goods on a day-to-day basis is both,
impracticable and uneconomical. The firm, therefore, may
order beyond the immediate needs of the company to
distribute the fixed cost over a large number of units.
b) To keep pace with changing market conditions:
Inventories are carried when large quantities of items are
purchased and stocked, in anticipation of their non-
availability in the future or in anticipation of spurt in their
prices.
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c) To prevent stock-outs:
To prevent the occurrence of stock-outs, certain extra stock
called as safety stock, is maintained. This forms a fixed
portion of inventories.
d) To stabilize production.
e) To prevent loss of sale.
f) To satisfy business constrains:
Due to some factors firms carries extra or minimum
inventories.
1. Supplier‟s conditions
2. Government regulations
3. Seasonal availability
Inventory management takes care of the factors and keeps the inventory
investment at minimum level to avail the opportunity over the funds.
Fig.3
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INVENTORY CARRYING COST
Inventory carrying cost refers to the cost of holding stocks. It
includes various elements as follows:
a) CAPITAL COST:
Capital cost is either the cost of borrowing capital or the cost
of diverting the company‟s funds for investment in
inventories. The opportunity cost of money represents loss of
opportunity to obtain returns on the value of stock and is
equals the R.O.R. (rate of return)
b) STORAGE COST:
Storage cost includes cost of storage space, cost of
maintenance and repairs, cost of storage facilities, cost of
preservation, cost of record keeping and cost of
periodic/annual stock verification etc.
c) DETERIORATION AND OBSOLESCENCE:
Deterioration is the loss from reduction in inventory value
due to following reasons:
i) The part/item/material may have limited shelf life and
may deteriorate if stored for a long time.
ii) Items also deteriorate when storage conditions are
inadequate, unsatisfactory or both.
iii) Deterioration can also result from poor handling in the
stores.
Obsolescence is the loss from reduction in inventory value of the
items/components that are rendered unusable by the company, due to
changes in design or due to the developments in the field.
Net profit before taxes
R.O.R. =
Total capital
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d) INSURANCE COST:
Inventories, like other assets, are covered by the
insurance. Insurance cost is thus the premium paid or payable
to cover the company against due to unforeseen acts such as
fire, theft etc
Fig.4
Capital
Cost
Storage
Cost
Deterioration
cost
Insurance
cost
INVENTORY CARRYING COST
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PROCUREMENT COST:
Procurement cost is the cost incurred to replenish the
stock of an item. It is also called as ordering cost, replenishment
cost or recoupment cost.
Basic elements of procurement cost are:
a) Paper work cost
The procurement function is built around the pyramid of
paper work, since all the orders- small or big needs paper
work.
b) Postage cost
Postage cost is the cost expended to mail the documents
necessary for the business transactions.
c) Follow up cost
Follow up is the functions of seeing that the suppliers effect
the deliveries on the time.
d) Cost of visits to the vendor’s plants
Follow up with the vendors at times requires visits by the
purchase personnel and therefore the costs of such visits are
considered towards procurement cost.
e) Operating cost of vehicles
Vehicles are employed for the collection and delivery of the
materials from the vendors or to the vendors incurred
operating cost of the vehicles.
f) Inspection and testing costs
Inspection and testing costs includes the cost of destructive
tests. Frequent purchases increases inspection costs.
g) Administrative costs
Procurement process leads to administrative work, which
adds the administrative cost.
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STOCKOUT COST
Stock-out cost represents the cost of going out-of-stock i.e. loss
incurred due to non-availability of the items when it is required. Stock-
out result when the stock of the items gets depleted before the receipt of
the fresh supply.
Occurrences which causes stock-out:
1. Unusual higher demand rate during procurement lead time
2. Delay in delivery
3. Transportation delays
4. Rejection in the incoming consignment
Stock-out of a vital machine spare may render a group of machines
idle, leaving a wide gap of unabsorbed overheads.
Major elements of the stock-out cost:
a) Cost of men and machines rendered idle.
b) Cost due to loss of profit on the production which does not take
place.
c) Cost of emergency actions such as air freighting charges.
d) Cost due to premium price paid due to alternate source.
e) Cost due to penalty paid for the delayed shipment.
f) Cost due to the overtime paid to workmen for inward inspection,
production shops etc
g) Cost due to customer‟s dissatisfaction‟s resulting from the delayed
shipment.
h) Cost due to loss of business.
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SELECTIVE CONTROL OF INVENTORIES
“No one can control everything nor should one try to do so (even if
one can)”. Equal control over all items is not possible since it increases
tedious job, since uniform control is rarely effective. Effectiveness
results when important aspects of the problem are pursued more
rigorously than others. A major portion time of the management time
should be spent in performing more important job. Since important job
are responsible for higher returns and business. Less important tasks-
those involving routine decisions and which involve less risk.
Uniform control is expensive and gives diffused results.
Selective control means variations in the method of control of various
items, based on a selective basis. The criterion used for the purpose of
selection may be the cost of the item, criticality, lead time, consumption,
procurement difficulties and so on. Each classification emphasizes
particular aspect. Selective control is divided into eight types.
1) ABC Analysis:
ABC analysis underlines a very important principle “Vital few:
trivial many”. It can be coated as Always Better Control. This is based
on cost criteria. It helps to exercise selective control when confronted
with large number of items it rationalizes the number of orders, number
of items and reduce the inventory.
About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources
A ITEMS
Small in number, but consume large amount of resources
Must have:
• Tight control
• Rigid estimate of requirements
• Strict & closer watch
• Low safety stocks
• Managed by top management
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B ITEM
Intermediate
Must have:
• Moderate control
• Purchase based on rigid requirements
• Reasonably strict watch & control
• Moderate safety stocks
• Managed by middle level management
C ITEMS
Larger in number, but consume lesser amount of resources
Must have:
• Ordinary control measures
• Purchase based on usage estimates
• High safety stocks
ABC analysis does not stress on items those are less costly but may be
vital.
20000050020
19950050019
19900050018
19850050017
19800050016
19750050015
19700050014
19650050013
196000150012
194500150011
193000175010
19125027509
18850040008
18450045007
18000050006
17500075005
16750075004
160000200003
140000500002
90000900001
CUMMULATIVE CUMMULATIVE
COST COST [Rs.]ANNUAL COST ANNUAL COST
[Rs.]ITEMITEM COST %COST %ITEM %ITEM %
70 %70 %
20 %20 %
10 %10 %
10 %10 %
20 %20 %
70 %70 %
ABC
A
N
A
L
Y
S
I
S
WORK
SHEET
Fig.5
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Currently in Bosch Ltd. Nasik plant ABC analysis is used heavily
for the procurement process. The criterion used for this analysis is
consumption based on previous data.
Few important points about ABC analysis:
a) The ABC small percentage of the items account for the major
expenditure on the materials.
b) All the items are considered together while doing ABC
analysis.
c) Annually consumption figures are considered for the ABC
analysis. ABC can be employed on quarterly basis also.
2) VED Analysis:
VED analysis is based on critical value and shortage cost of an
item. It is subjective analysis.
Items are classified into:
VITAL: Shortage cannot be tolerated.
ESSENTIAL: Shortage can be tolerated for a short
period.
• DESIRABLE: Shortage can be tolerated for a short
period. Shortage will not adversely affect, but may be
using more resources. These must be strictly
scrutinized.
VED analysis is carried out to identify critical items. An item which
usage-wise belongs to the C-category may be critical from the
production point of view. Stock-out of such can cause heavy
production loss.
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3) S-D-E Analysis:
S-D-E analysis is based on the problems of the procurement,
Non-availability
Scarcity
Longer lead time
Geographical location of suppliers
Reliability of suppliers
S-D-E classifies items as Scarce, Difficult and Easy.
4) FSN Analysis:
FSN analysis is based on the principle of utilization of the material.
F: Fast moving
S: Slow moving
N: Non-moving
Non-moving items must be periodically reviewed to prevent expiry
and obsolescence. Such analysis helps to identifying:
Active items which require to be reviewed regularly
Surplus items whose stocks are higher than their usage
rate.
Non-moving items which are not being consumed.
Appropriate actions over such items can release the
company‟s productive capital.
5) HML Analysis: This analysis is based on the cost per unit.
H : High cost
M: Medium cost
L : Lower cost
This is used to keep control over consumption at departmental
level for deciding the frequency of physical verification.
`
HML analysis helps in controlling more precise by taking
inventory investment point into consideration. This helps in improving
returns over fund.
6) G-NG-LF Analysis: This analysis is based on the nature of the suppliers. This is also
called as GOLF analysis.
G : Government suppliers, such transactions take long lead
time.
NG: Non-Government suppliers/ ordinary suppliers.
L : Local suppliers.
F : Foreign suppliers.
Based on the source and the type of the supplier the management is
employed to absorb the irregularities concern with the suppliers.
7) S-OS Analysis: S-OS analysis is based on the seasonality of the items and it
classifies the items into two groups- S (seasonal) and OS (off-
seasonal). Items are analyzed as follows,
Seasonal are available for limited period. Therefore
such items are procured to last the full year.
Seasonal but available throughout year. Such items are
procured at some suitable time to avail the benefits of
the cost.
Non-seasonal items, whose quantity is decided on
different consideration
8) X-Y-Z Analysis: XYZ analysis is based on the value of the stock in hand. This
analysis considers inventory investment as the main aspect of
control. XYZ analysis, helps to identify a few items that account
for large amount of money and which locked up in stock and to
take steps for their reduction.
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LEAD TIME:
Lead time is the time that elapses between the realizations of the
needs for the items until the fulfillment of the needs. Thus lead time is
the total time necessary to replenish the stock of an item.
Various elements comprise lead time are listed below:
Time required by the indenting department to convey requirement
to purchase.
Time required by the purchase department to convert a purchase
indent into a purchase order.
Time required by the supplier to route the buyer‟s order through
his administrative channels and fill the same.
Transit time for the goods to reach the buyer‟s works.
Time required by the receiving department to inward goods.
Time required for inspection to verify the quality of goods.
Time required by the store department to take goods into stock
and update the stock records.
Lead time of an item has a major influence on the investment in
inventories. The longer the lead time, the higher is the working as
well as safety stock.
Internal lead time can be reduced by:
a) Selectively delegating powers.
b) Better paper work procedure.
c) Fixed target for individual activities of the lead time.
External lead time can be reduced by:
a) Developing local suppliers.
b) Negotiating annual contacts with staggered deliveries.
c) Selecting efficient and faster modes of the transport.
d) Making supplier carry inventory at their plants.
Fresh supply shall be received as soon as the stock of an item
drops to zero. This is possible only if replenishment action taken at right
time, there is no increase in demand during lead time, there is no-delay
in getting the supplies.
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SAFETY STOCK:
All items of consumption are equally important from the
production point of view. Shortage of any item may lead to adverse
effect on production process. Sometimes such shortage may lead to
heavy work load that cannot be compensated. Shortages do occur even
when accurate and realistic order points have been computed. Safety
stock provided to safeguard against these shortages.
Safety stock for the items which are costly like „A‟ are less,
possibilities for the stock-out for such items are cut down by closer
forecasting, frequent reviewing and more progressing. For less costly
items like „C‟ sufficient safety stock is maintained to eliminate
progressing and to reduce the probability of stock-out.
Re-order level, which is commonly abbreviated as R.O.L., is the
sum of safety stock and the average lead time consumption. Stock equals
to lead time consumption is intended to satisfy average demand during
lead time. The safety stock is meant to absorb other contingences such as
delay in delivery, increase in consumption and rejection in the incoming
consignment. Re-order level is located somewhat above the minimum
level; the quantity order is fixed and depends upon economic order
quantity (EOQ) to take advantages of order.
Fig. 6
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Errors
in
forecast
Service
And stock
Forecasted
Demand
Lead time
Actual
demand
Safety
Stock
Fig. 6 shows the graph of reorder quantity and lead time with
safety stock consideration in stock replenishment process. Safety stock
is utilized till the fresh stock is procured after consumption of lead time
stock. This also absorbs the irregularities in the procurement process and
avoids stock-out. Reorder level is addition of safety stock and lead time
consumption stock.
However, there is always an error in forecasting demand and
predicting lead time. Thus, relying on the forecasting calculation could
lead to inventory stock-out and an inability to meet customer demand.
This can have an adverse effect on customer loyalty. This is why
companies guard against this uncertainty by maintaining extra inventory,
traditionally referred to as safety stock.
Currently in BOSCH Ltd. Nasik plant the data of the materials is
entered in the system and depending upon the past experience and
current consumption the safety stock value is set. This was observed that
these values are based on the technical experience, lead time
calculations, procurement time and so on. Subsequent chapters are
explained to understand the current system and to evaluate it for higher
reliability.
The terms “safety stock” and “buffer stock” are used
interchangeably, with a slight semantic difference. Buffer stock prevents
the producer from being unable to meet customer demand whereas
safety stock helps the producer to meet variations in the supply of raw
material. Thus, we see that safety stock guards against variations in
demand (d) and variations in supply lead time (l). Safety stock is
sometimes referred to as a necessary evil. Higher safety stock than
required can block capital and increase operational costs, whereas low or
no safety stock can lead to lost sales and customer dissatisfaction.
Fig. 7
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Present practice of procurement is based on the consumption
analysis and safety stock value. Procurement office gets the update of
the materials whenever the material is issued to the maintenance or any
other department, procurement officer checks the current stock of the
items when the stock of the items falls to safety stock value he place the
purchase requisition to start the purchasing of the items. While doing
this officer does not pay any attention towards the factors like criticality
of the items, failure mode of the items, and shelf-life of the item.
Currently in BOSCH Ltd. Nasik 291 parts are reviewed on a
criticality basis. Such parts are treated as important parts and priority is
given to such parts. Thus stock of such parts is maintained progressively
and kept to attain the higher control. Critical parts are used on critical
machines at critical cost centre. Such machines may be feeding station in
the production line (like Sufina, needle body grinding machine),
stoppage of the production of such machines may lead to stoppage of the
whole production line and may leave unabsorbed work load. So such
critical parts are maintain to safety level and no-stock condition is
avoided to prevent any harm on production and maintenance work.
Critical parts safety stock is maintained at any cost, since these are the
vital constrain of the industries. Lead time irregularity and consumptions
are review with critical aspect to give firm control over safety stock of
these 291 parts.
While selecting safety stock value operators failures and uncertain
failures are to be considered and reviewed periodically to update the data
of safety stock. Parts which came along with machines and guaranty of
the parts are scrutinized to take benefits of the policy and terms in
procurement. Physical stock taking to crosscheck the stock in hand helps
in avoiding load on safety stock.
Currently the materials which are not included in the stock items
list are purchased under class-4 requisitions this takes care of the parts
which are analyzed on the future forecasting or planning for
improvement. This may include parts which are to be tested for the new
experiment and procured for testing purpose.
`
Criticality, consumption rate, cost, shelf life, source of supplies
and so on affects the value of safety stock. As per the items various
factors are dominant and thus a combined and systematic approach
towards parts is developed to attain stability and yield good outputs.
Based on the study of material management and analysis of the current
procurement practice various factors which are responsible are explained
briefly. Ever factor plays a important role and gives contribution for
safety stock.
Criticality:
Some parts from the stock are employed on such
machines that are maybe feeding lines and shortages of
such parts leads to high loss. Such parts are vital from
the critical point of view. Safety stock of such items is
to be maintained whatever the cost and consumption. In
usage and cost wise belongs to „C‟ type but as it is
critical, its safety stock is maintained and reviewed
progressing. Critical parts are control with strong
attention and with higher priority.
Consumption: While selecting the value of safety stock, consumption
of the part from previous records is taken into
consideration. Last two year consumption of the part is
reviewed while controlling safety stock. If consumption
of the part is considerable then its safety stock is
maintained with higher value compared to the parts
which are used less.
Lead time:
Lead time is the time lag between the dates of order to
the date of arrival of fresh stock. Lead time is the key
factor in deciding safety stock value. If lead time is less
then safety stock can be maintained at lower value and
inventory investment can be reduced and optimized for
better returns. Long lead time leads to accumulation of
higher safety stock value. Lead time irregularities are to
be also considered while selecting safety stock.
`
Cost of part: There is always investment management while
selecting safety stock. If costly items are stocked and
their safety stock is maintained more, then it bocks the
useful investment and opportunity cost over it. Safety
stocks of costly items are reviewed and control rigidly,
these stock values are optimized to give balance
between safety stock and inventory investment. Higher
attention is given to high cost part as their control leads
to lower inventory investment.
Source and procurement policies: As per the source of supplies and polices while
procurement is important aspect while selecting safety
stock. If source of the part is located in foreign then it
takes large procurement as well as transportation time.
The safety stock value for such items is maintained at
higher level to absorb any error in procurement. If
source is selected from local area then minimum value
of safety stock is maintained to avail the benefit of local
supplier.
Shelf-life:
During storage of the items some items get expired
early due to short period of useful time. Perishable
items are to be stocked and used in control manner and
while procuring them are reviewed more precisely
compared to regular items. The safety stock for such
items is kept to lower value in order to avoid loss due to
obsolescence.
Failure modes: While working in regular conditions the failure of the
part is due to completion of the life cycle of the part, so
such parts are replenish on the basis of life cycle. If any
part fails before completing evaluated life cycle then
there is uncertainties involve in failure of the part. Parts
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may fail before its stipulated life span due to operators
fault or maybe due to faulty method of replenishment.
Accidents are also responsible for the uncertain failures.
Safety stock is provided to take care of such uncertain
failures and accidents. The frequency of such uncertain
failures can be predicted from unskilled worker,
working practices involved and fluctuation in demand.
Seasonality:
Some parts are available for the limited period of the
year and are to be procured at that time of the year. The
sock of such item is more compared to the parts which
are available throughout the year. Safety stock value of
such items is more to absorb any increase in demand.
Safety stocks of the items which are available
throughout the year are maintained less compared to the
parts which are seasonal.
Consumption
Criticality
Lead time
Seasonality
Failure
modes
Cost of part
Procurement
polices &
source
Shelf-
life
Sa
fety
sto
ck
Fig. 8
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Various points stated above value of the safety stock are evaluated
and combined aspect is utilized for better results. As per the study of the
material management if any system is employed for the safety stock
value consideration it stabilizes the error and prevents the no-stock
condition. Any system has its basic concepts but following a single
concept may give better result but combined approach of various factors
gives optimized results and reliability of the system is improved. Errors
are also minimized if value of safety stock is calculated and updated
from all aspects.
As per the study of various approaches equation is developed for
the calculation of safety stock.
(Criticality) + (Consumption) + (Lead time) – (Cost)
+ (source dist.) + (shelf-life) + (failure reasons)
+ (seasonality)
The rating to concern category is given from low to high and depending
upon the results safety stock value is obtained. The value of the safety
stock thus obtained is discussed further for the improvement and
correction in it leads to optimization of the system.
Currently procurement officers check the safety stock and also last
year consumption and depending upon the analysis of the data purchase
requisition is raised taking into account lead time. The values of the
materials are based on the experience of the technical person,
consumption rate, and lead time. While in case of 291 parts criticality is
also taken into consideration. So if we rate part accordingly and while
taking their evaluation in equation sated above gives a stable results.
Safety stock =
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Rating to elements of safety stock:
Criticality :
As per the vitality of the part it is rated as vital,
essential or desirable and depending upon the criticality safety
stock of the item is rated. So depending upon criticality parts is
given more or less attention. So vital parts are rated more
compared to essential and desirable. So safety stock value for vital
parts becomes more compared to essential and desirable.
Consumption:
Consumption is the data analyzed from the last two
year records. If consumption of the part is more rating of the part
is more which adds the safety stock value. If consumption of the
stock is less then accumulation of safety stock is less. So
according to consumption the safety stock is stable and can absorb
any raised in demand. This also prevents the extra stock for the
consumption point of view.
Lead time:
Lead time is important aspect as long delay in lead time
may result in stoppage or high work load. To avoid such
conditions lead time is considered while calculating safety stock.
If large lead time then safety stock high rating is given in safety
stock calculation. Safety stock for large lead time is more
compared to small lead time. So consideration of lead time
absorbs the stock-out condition due to lead time delay.
Cost of the part:
Cost is main aspect which is to be control to yield high
profit. Costly parts are given high rating and less costly parts are
rated low. Thus high rated parts cut down high amount from the
safety stock value hence give balance between cost and other
aspects. Since stock of costly parts is maintained low and this
improves inventory investment. Cost rating is deducted from the
safety stock calculation so high cost deducts more safety stock and
thus satisfies the aim of inventory management. Since low cost
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deduct low amount of safety stock. So selective attention is given
to costly part compared to less costly part.
Source and procurement policies:
Source location is also taken while deciding the safety
stock value calculation. Rating for the parts which are procured
from the source outside (foreign) is given more compared to the
parts which are procured from the local supplier. Hence safety
stock value for the source outside the country is more and
maintained to absorb the irregularities in the procurement. Policies
while procurement is also important since higher support firm
supplier leads to less safety stock carrying and help to absorb of
no-stock.
Shelf-life:
Perishable parts are stocked less compared to the parts
which has long life. So the parts which are perishable are stocked
for low amount the safety stock value of such part is low. This
helps in effective utilization of the product within its product life
and helps to avoid the obsolescence. So rating of perishable part is
given less which contributes less to safety stock and parts which
are having long life span are rated high so that, it increases the
safety stock value. So perishable parts are stock minimum and
non-perishable parts are having higher safety stock value.
Failure modes:
Failure mode is rated according to reasons of failure.
Parts which fail due to completion of life span are rated low while
parts which fail due to uncertainties, operator‟s mistake, and
accident are rated more. So depending upon the mode of failure
safety stock is adjusted to take care of any un-certain failure. This
helps in dealing the problems due to untrained worker and
accidental breakages.
Seasonality:
Seasonal parts are rated more compared to the parts
which are available throughout year, so seasonal parts evaluate
higher safety stock compared to non-seasonal parts.
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While collecting data for the rating purpose in calculation of
safety stock criticality is decided from the location and importance
of the part in the production process. So the technical person may
give this rating. Consumption rating can be given by the
procurement officer by analyzing past year consumption data.
Lead time is rated by procurement officer since he can evaluate
the past lead time and current expected date of deliveries from the
supplier‟s data and transportation records. Lead time updating is
also employed for better results and reducing errors.
Cost rating can be given by procurement officer since he can
go through the purchase order. Updating the figures of cost of the
parts helps to attain investment control. Procurement source rating
is also given by procurement officer since he can access to the
data of procurement. Shelf life of the product can be calculated
from the estimation given by the supplier, so depending upon the
estimation shelf life rating also given by the procurement officer.
Failure mode rating can be employed in two ways recording
the modes while issuing the parts at inventory level updates the
data or the frequency of the failure which fall uncommon
distribution can be classified to uncertain modes of failure. So the
data of the parts failure mode is updated regularly for better results
and more reliable safety stock value. Seasonal parts rating can be
given by procurement officer.
A selective control in safety stock rating by managerial
person helps in optimizing the data and improving reliability of
the data. Healthy communication between procurement and
technical department helps in optimizing the data foe efficiency of
the system.
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CONCLUSION From the material management it is clear that effective
management tool helps in improving the efficiency of the
company and stabilizing the uniformity in the production. Safety
stock is of vital importance from the safety point of view. BOSCH
Ltd. Nasik has efficient procurement process and the safety stock
values but since these are to be updated for better results from the
data analysis.
Effective system helps in dealing the problems of urgency
and helps in adding confidence in the firm management. The
reduction in the system error helps in reducing the work load and
smoothen the working of the system for better returns over
invested funds.
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References:
Material management by L.C. Jhamb and Madhup Gandhi,
published by Symbiosis Centre for Distance Learing Pune
Material management by DR.I.Selvaraj, I.R.M.S
Safety stock by Nitesh Luthra.
