Special Issue Article Open Access

Inventory Optimization in a Pump Industry Using Kraljic’s Matrix

Abstract

The Pump Industry is characterized by steady growth in periods of economic growth and decline when capital investments are down in high interest rate periods. The demand for pump components can be predicted with some degree of accuracy when scientific tools of inventory management are deployed. These tools help reduce needless inventory levels and lower capital expenses for firms at times when the interest rate and hence cost of capital is high. The aim of this project was to reduce the cost of inventory of items selected by 10 percent points. The items selected were grouped into a two by two matrix, popularly known as Kraljic’s matrix. The items were classified on the basis of whether the spend was high or low and whether supplier vulnerability was high or low. The Quantity price break model was used for items which were low in spends and low in supplier vulnerability. The EOQ model was deployed where the Spend was high and the supplier vulnerability was low. The complete aggregation model was applied where the Spend was low and the Supplier Vulnerability was high and the Taylor aggregation was used when both Spends and Supplier Vulnerability was high. Demand data from April 2012 to March 2013 was used to process information. In addition, procurement and transportation cost was also obtained for each product selected for the analysis. Results showed 25% savings from the EOQ model for rotor shaft respectively. The quantity discount model revealed 3.08% savings potential. Similarly, 9.7% savings for complete aggregation model in security segment and 11.47% saving for tailored aggregation model in critical segment have been attained. In summary, reduction in inventory cost of 13% has been obtained across all the models. Future studies can be carried for other categories of materials in the submersible pump industry.

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