An inventory control project in a major Danish company using compound renewal demand models

We describe the development of a framework to compute the optimal inventory policy for <p> a large spare-parts’ distribution centre operation in the RA division of the Danfoss Group <p> in Denmark. The RA division distributes spare parts worldwide for cooling and A/C <p> systems. The warehouse logistics operation is highly automated. However, the procedures <p> for estimating demands and the policies for the inventory control system that were in use <p> at the beginning of the project did not fully match the sophisticated technological <p> standard of the physical system. During the initial phase of the project development we <p> focused on the fitting of suitable demand distributions for spare parts and on the <p> estimation of demand parameters. Demand distributions were chosen from a class of <p> compound renewal distributions. In the next phase, we designed models and algorithmic <p> procedures for determining suitable inventory control variables based on the fitted <p> demand distributions and a service level requirement stated in terms of an order fill rate. <p> Finally, we validated the results of our models against the procedures that had been in use <p> in the company. It was concluded that the new procedures were considerably more <p> consistent with the actual demand processes and with the stated objectives for the <p> distribution centre. We also initiated the implementation and integration of the new <p> procedures into the company’s inventory management system