Improving Service Level through Component Inventory Management

Abstract

In every company, determining an optimal inventory level balances the desired service level with the costs of holding too much inventory. For the medical device industry, the stakes are high as risks in the supply chain of devices used by hospitals and operating rooms can have a devastating impact. In this capstone, we focus specifically on component inventory sourced from a variety of suppliers that are used for assembly and finished goods production by our sponsoring medical device company. Beyond the typical safety stock formula that incorporates only consumption and lead times and a target service level, we evaluate additional planning levers that impact supplier service level. We interviewed and surveyed suppliers regarding their forecasting, production planning, and internal inventory management practices, and incorporated both qualitative and quantitative elements into our analysis of the key focus areas for improving service levels with our sponsoring company’s component suppliers. We discuss key actions that can be taken related to the sponsor’s supplier planning portal in the areas of forecasting, frozen period planning, and supplier evaluations that will reduce component service level risk in future planning periods. These actions are likely applicable to any medical devices manufacturer who experiences similar inventory challenges within their component supply chain.