Managing critical spare part inventories in an oil drilling company using an economic ordering quantity (EOQ) method

Abstract

Inventory control is an activity related to the planning, implementation and supervision and determination of material requirements in such a way that the operational needs can be met in time by investing in material inventories can be controlled at the most economical level. This paper proposes an efficient inventory management for controlling spare parts in an oil drilling company. ABC analysis is employed to classify the spare parts based on investment value. The spare part demand is then predicted using 3 forecasting methods, namely Croston, Syntetos-Boylan Approximation (SBA) and Single Exponential Smoothing (SES). The inventory level is developed by determining the optimal quantity order using an Economic Ordering quantity (EOQ) method. Safety stock and reorder level are also determined by allowing the considerations of lead time, error and service level. The existing inventory policy used by a company is calculated and compared with the proposed policy. By adopting the proposed inventory policy, the company will incur annual total inventory cost IDR 45,448,786, which is lower than the cost resulting from an existing policy IDR 51,552,528.