Optimizing Inventory Levels: An ABC And XYZ Aproach - A Case Study In Furniture Industry

Abstract

The current context of the furniture industry is represented by a competitive and demanding consumer market and the consequent need for implementation of methods and optimizing models that contribute to an efficient management, cost reduction and an increase of customer satisfaction. This research concerns about the solution to give best inventory management in this industry through minimizing the total inventory cost and maintain the service level. In more details, this thesis focuses on case study of company M, a start-up furniture company with one year experience. In this context, this firm needs to pay more inventory management to guarantee the company’s brand as well as reduce the cost for error in dealing with stock. To get this objective, an ABC-XYZ analysis is suggested to classify the multiple items system which has abundant kinds of product. The characteristics of each group is evaluated to define suitable service level range for class-items. Moreover, three suggested models will be considered according to flexible inventory level and optimal solutions are also implemented. Data is collected from actual sales and demand of company, which was recorded in the last half year 2019 involving related costs. The data contains demand and cost incur of 581 different SKU in six months, between July and December. The classification of item group based on ABC-XYZ is conducted in MICROSOFT EXCEL and three suggested models are implemented by IBM CPLEX. Different scenarios are conducted based on the adjustment of inventory level to target stock and those all give feasible solutions. It is important to know what the inventory carrying rate is based on and how it should be determined to have the most reliable results.