Strategies for Managing Excess and Dead Inventories: A Case Study of Spare Parts Inventories in the Elevator Equipment Industry

Spare parts organizations of elevator original equipment manufacturers (OEM) face enormous challenges on how to manage their excess and dead inventory due to the life-cycle of the equipment. On one hand, the long life-cycle of equipment's requires that organizations ensure the provision and availability of the spares until equipment termination / retirement. On the other hand, these organizations need to control their inventory carrying cost, inventory write-offs and ensure that only needed spare parts are available for their customers. This study explores operations and inventory strategies for reducing and controlling excess inventory. Through a combination of literature review, root cause analysis and the implementation of these strategies in a case company, a managerial tool-box for managing and controlling excess inventory was developed. Root causes of excess inventory were shown to be due to data errors in inventory planning parameters, inappropriate demand forecasting methods, lack of ownership, lack of part life-cycle management and part lifecycle pricing as well as internal practices within the organizations. The paper proposes managerial tool-box that includes both Strategic (ownership and key performance indicators, strategic policy on reverse logistics, customer buybacks, large purchase volumes for sourcing savings, leveraging Big Data and Analytics); Reactive (lateral transshipment, scraping & disposal of excess inventory, sales discounts, spare parts dismantling into sub spare parts) and Proactive (Croston/SBA forecasting, exception management for data errors, tool/algorithm for new spare parts forecasting, part replacement control measures, forecasting sudden decrease in demand and part life-cycle pricing) measures on how excess inventory can be controlled and reduced.