Empirical Evaluation of Continuous Review Inventory Policies for Spare Parts in the Wire and Cable Manufacturing Industry: A Multi-Scenario Cost Analysis with Multi-Criteria Classification and Demand Behavior Integration

Abstract

This study aims to enhance spare parts inventory management efficiency in the wire and cable manufacturing industry through a systematic analysis and data-driven approach. The analysis combines multi-criteria inventory classification methods: ABC analysis (based on annual consumption value), VED analysis (assessing vital, essential, and desirable criticality), and SDE analysis (evaluating scarce, difficult, and easy procurement levels) to efficiently group inventory based on annual consumption value, operational criticality, and procurement difficulty. Subsequently, demand pattern analysis is performed to evaluate each spare part’s demand characteristics. From an empirical dataset of 377 spare part items, fifteen items were selected from four high-priority classification groups ESA, VEA, VDA, and VSA for a detailed evaluation of suitable inventory control policies. Analysis of the selected items showed smooth demand behavior, whereas only two items in the ESA group exhibited intermittent demand. Two continuous review inventory control models, (s, S) and (s, Q), were assessed across four service levels 80, 90, 95, and 99 percent to evaluate their effectiveness in minimizing shortages and overall inventory costs. Accurately estimating shortage and opportunity-loss costs remains a significant challenge. To analyze the cost-performance trade-offs among ordering, holding, and shortage costs, three scenarios were considered: (1) total inventory cost (TIC) without shortage cost, (2) TIC including expedited shortage cost, and (3) TIC including opportunity-loss shortage. Results revealed that the (s, S) policy not only eliminated spare part shortages but also yielded significant reductions in total inventory costs by approximately 46 percent for TIC with expedited shortage costs and 97 percent for TIC with opportunity loss shortages relative to the manufacturer’s existing operational practices. Optimal service levels were determined by balancing TIC and shortage risk based on each item’s demand variability and criticality. The findings indicate that aligning inventory control policies with demand behavior and part criticality enhances cost efficiency, reliability, and production continuity.