Process redesign of the Norwegian Navy Materiel Command's replenishment of inventory items

Abstract

The Norwegian Navy Materiel Command must keep inventory in order to serve its customers. Service level is established as a measure of effectiveness on delivery from inventory. Long replenishment lead-time, with variability in both lead-time itself and lead-time demand, make it hard to achieve the desired service level. The lead-time becomes costly, both in form of holding cost of safety stock and in form of stock-outs. Current inventory control policy used at the Materiel Command is presented, and compared to theoretical inventory control models. Computer simulation is used to measure current administrative lead-time at the Norwegian Navy Materiel Command. Two proposals for redesign of existing replenishment process are built as simulation models, and the effect on administrative lead-time and associated variability is measured. The first proposal is to consolidate two separate procurement offices into one. The second proposal is to introduce, and use electronic commerce in the replenishment process. It is concluded that both redesign proposals will reduce administrative lead-time, variability and hence cost. Benefits from an introduction of electronic commerce will yield a yearly cost saving of at least 4,500,000 Norwegian Kroner, which is more than four times the savings of consolidation