Planning of Ordering Policy for Logistics Department of a Barge Mounted Power Plant

Abstract

Today, material management has gained acceptance in all developing economics. As material is nothing but money in the form of goods, each industry uses materials for its smooth running. A Power Plant is a public-interest company. Electricity plays a very' important role in regulating modern Ii lii. Therefore, any interruption in the supply Of this vital itcm of energy puts the whole system out of gear and paralyses our life. It uses various types of materials for smooth running. Raw materials and consumables are being converted into work-in-progress and finally produce electricity for national grid. Spare parts and components are utilized for the smooth functioning of the production machineries. This necessitates the involvement of the finance executives with the policy- appropriate management system of spare parts for schedule maintenances is developed in this research. making of the materials function. So, an This research work is an outcome of scientific spare parts management policy required for schedule maintenance of a Barge Mounted Power Plant, Bangladesh. The materials department accounts for over 60 percent of the cash outflows and 90 percent of working capital in the Plant [4]. The Logistics Department is responsible for managing all types of materials in the Plant. The functions of procurement, materials management, business logistics, inventory control and warehousing are being carried out in the Plant under the scope of integrated materials management. The Plant follows various procedures to manage its materials. But the management does not follow any analytical procedure in setting up reorder points. As a result, the Plant faces over-stocking of spare parts in the warehouse. This situation acts as a catalyst to increase the total expenditure of the Plant. By applying scientific materials management method it has been calculated reorder points, safety stock and order quantity of spare parts of schedule maintenance which eventually reduced overstocking as well as overall cost. The Plant gets an idea of annual power demand from BPDP. Based on BPDP's power demand, Operation department determines annual plant factor and Maintenance department makes annual maintenance schedule depending on plant factor. Logistics converts number of schedule maintenance into annual spare parts demand and review period spare parts demand and places orders accordingly. The strategy of logistics department is to review the inventory position in the first week of every month (i.e. review period R=one month=30 days) and places order of those items which are at or below the reorder point depending on the demand of planning period (lead time + review period). If the position is above reorder point, nothing is done until the next review period. So, the Plant more or less follows (R,s,S - Periodic-review, recorder point, order- up-to-level) system. Theoretically, (R,s,S) system is appropriate when tight control is necessary, e.g. for class A items. Reorder point is the base-stock of the system. Relying on a reorder point replenishment actions are taken. But the Plant uses the (R,s,S) system for all type of spare parts to show a high degree of responsiveness to meet demand rate. Reorder point answers the question when to order in the system. Applying (R,s,S) system actual reorder points, safety stock and ordered quantity of schedule maintenance parts are determined in this thesis (chapter 4). Lead time is an important factor in placing an order. The order quantity depends on lead lime. The Plant's calculated lead time is 90 days (chapter 3) and review period is 30 days. So, the Plant can place maximum three orders in a year. For lengthy lead time, it has to place order of large quantity. In the obtained data of previous year, it has been observed that the Plant's tendency is to bring yearly demand by placing two or a single order. In this research work, it has been shown that three orders can meet yearly variable demand easily. It reduces holding cost but increases ordering cost in the Plant. As ordering cost mostly depends on the salary of the employee of the purchase department, so ordering cost per order is almost constant in the Plant. If for a given period actual demand is less than expected, extra inventory is left over, which increases the holding cost. Therefore, there is no reason in decreasing ordering cost. The calculated holding cost in the Plant is 66% of unit value of an item and ordering cost is $25/order/item chapter 3). Holding cost plays a vital role in increasing or decreasing of total incremental cost. The objective of this research was to reach a balance between the extra holding cost and the ordering cost.

In the obtained data, it is observed that 122 (one hundred twenty two) items are required to execute all schedule maintenances. ABC classification has been carried out in this research to find out key components (chapter 3). Out of 122 (one hundred twenty two) items only 14(fourteen) items are graded as class A items. But all items are equally important from maintenance point of view. With shortage of any item the maintenance task cannot be done Successfully. So, from maintenance point of view all 122 (one hundred twenty two) items are regarded critical. In the thesis work, annual demand, lead time demand and review period demand of various spare parts required for schedule maintenance are determined based on maintenance schedules to be carried out in whole year. Demand is the output of inventory control system. So it is more emphasized on demand calculation. After demand calculation, reorder point, safety stock and ordering quantities have been analytically calculated. Calculated total incremental cost is compared with the data of previous year (chapter 4), it is found that most of the low valued (class C) items are having lower holding cost than ordering cost. So, total incremental cost of these items becomes lower. Again, there is no benefit in decreasing ordering cost for C class items in the Plant. On the contrary, reducing holding cost, it is shown in this research that the total incremental cost of 2006 is 1.70% lower than previous year after covering extra 5% plant factor and more 19 schedule maintenance (in 2006 plant factor was 75% with 222 maintenance and in 2005 plant factor was 70% with 203 maintenance) of which (19 maintenance) total incremental cost is USD 21,938.08. If this value is deducted from existing figure then it becomes 10.12% lower in comparison with previous year. Total inventory cost is not compared because it is largely influenced by purchase cost. The Materials Requirement Planning (MRP) may act as a bridge between Logistics and Maintenance department. But, the Plant does not maintain MRP. As a result, it has to face communication gap among the departments. MRP of 1 500hrs. maintenance is shown in this research as a sample. All the data available in the Plant are deterministic. It may change due to the change of power demand of BPDP.