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An inventory control project in a major Danish company using compound renewal demand models

Christian Larsen (), Claus Hoe Seiding, Christian Teller and Anders Thorstenson ()
Additional contact information
Christian Larsen: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Claus Hoe Seiding: The Danfoss Group, Postal: Refrigeration & Air Conditioning – Global Logistics, Nordborgvej 81, L3-Ø118, 6430 Nordborg, Denmark
Christian Teller: The Danfoss Group, Postal: Refrigeration & Air Conditioning – Global Logistics, Nordborgvej 81, L3-Ø118, 6430 Nordborg, Denmark
Anders Thorstenson: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

No L-2007-02, CORAL Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: We describe the development of a framework to compute the optimal inventory policy for a large spare-parts’ distribution centre operation in the RA division of the Danfoss Group in Denmark. The RA division distributes spare parts worldwide for cooling and A/C systems. The warehouse logistics operation is highly automated. However, the procedures for estimating demands and the policies for the inventory control system that were in use at the beginning of the project did not fully match the sophisticated technological standard of the physical system. During the initial phase of the project development we focused on the fitting of suitable demand distributions for spare parts and on the estimation of demand parameters. Demand distributions were chosen from a class of compound renewal distributions. In the next phase, we designed models and algorithmic procedures for determining suitable inventory control variables based on the fitted demand distributions and a service level requirement stated in terms of an order fill rate. Finally, we validated the results of our models against the procedures that had been in use in the company. It was concluded that the new procedures were considerably more consistent with the actual demand processes and with the stated objectives for the distribution centre. We also initiated the implementation and integration of the new procedures into the company’s inventory management system

Keywords: Base-stock policy; compound distribution; fill rate; inventory control; logistics; stochastic processes (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ppm
Date: 2007-03-01
Note: Published as: Larsen, C, Seiding, C H, Teller, C and Thorstenson, A, An Inventory Control Project in a Major Danish Company Using Compound Renewal Demand Models, IMA Journal of Management Mathematics, Vol 19, 2008, pp 145-162
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