Combing TOC and the replenishment model for optimizing deteriorating inventory management: A case study of the aerospace industry

Authors: Ching-Hua Lu, Ying-Chyi Chou, Jen-Hung Huang, & Hsiao-Wen Chu

Journal: Corporate Management Review. June. 2018, 38(1): 37-63.

Keywords: Aerospace manufacturing industry; theory of constraints; material management; simulation analysis.

Abstract:
As there are strong and positive correlations between the reliability of aircrafts and passenger safety, the requirement on quality and choices of materials and components remains a top priority compared to all other industries. Some aircraft materials, such as paint, glue, rubber, and composites, deteriorate in quality and value over time, resulting in stock shortages. In addition, high inventory levels of materials are the main characteristic of the aircraft manufacturing ndustry due to design change requests and the variety and complexity of the materials. This study adopts a two-stage process to improve inventory anagement for the case company in the aerospace industry. The first stage systematically assesses issues such as bargaining power and determines the elevance and interactive influence among sectors related to inventory management. By using the theory of constraints (TOC), this study further diagnoses the undesirable effects (UDEs) of material management systems and identifies root problems or inconsistent material management actions. Via UDEs, the second stage constructs a current reality tree (CRT) to realize a company’smaterial management objectives and requirements and to figure out what actions it must take to meet these objectives. This study also explores four scenarios that would benefit from such improvement. The ultimate goal in the future is for vendors to be able to distribute profits according to the corresponding situation.