Inventory management of spare parts in an energy company

Abstract

We address the problem of how to determine control parameters for the inventory of spare parts of an energy company. The prevailing policy is based on an (s, S) system subject to a fill rate constraint. The parameters are decided based mainly on the expert judgment of the planners at different plants. The company is pursuing to conform all planners to the same approach, and to be more cost efficient. Our work focuses on supporting these goals. We test seven demand models using real-world data for about 21 000 items. We find that significant differences in cost and service level may appear from using one or another model. We propose a decision rule to select an appropriate model. Our approach allows us to recommend control parameters for 97.9% of the items. We also explore the impact of pooling inventory for different demand sources and the inaccuracy arising from duplicate item codes.

Keywords:

• inventory
• spare parts
• demand model
• fill rate
• record inaccuracy
• oil

Acknowledgements

We are grateful to discussants and audiences at ISIR Summer School Istanbul 2011, INFORMS Annual Meeting Charlotte 2011, EurOMA Cambridge 2011, Statoil Kompetansedager Bergen 2011, NHH Seminar Geilo 2012, EURO Vilnius 2012 and ILS Quebec 2012 for their valuable comments. We thank the anonymous reviewers, whose comments improved the final version of the article. We also thank Vivienne Knowles and Vegard Engeset for their help in bringing this article to fruition.