Determining products for Assemble-to-Order inventory: Development of a calculation model and an implementation process

Abstract

Determining which items and materials to stock is an essential aspect of inventory management. In this study, ATO (Assemble-to-Order) offering management refers to defining which materials are stocked to enable short lead times for end products. A calculated ATO offering is a computationally defined set of materials and components that ensure sufficient availability of end products while minimizing inventory costs. Defining a calculated ATO offering is important across the organization, as it impacts manufacturing, operations, inventory costs, customer satisfaction, and overall business performance.

The objective of this study was to identify the key criteria for determining which items and materials should be stocked in an ATO environment, and how these criteria can be formed into a calculation logic for a computational model. The study also examines how computational suggestions of materials to be added to or removed from stock should be implemented in practice. For the case company, the goal of this study was to create a way to challenge and evaluate the current ATO offering, by developing and implementing a historical demand-based calculation model. This model is used to evaluate and suggest changes to the ATO offering on an annual basis within the case company. Optimizing the ATO offering improves availability for high-demand items and reduces unnecessary inventory to free up inventory-tied capital. This systematic approach to reviewing the ATO offering enables holistic management, allowing adjustments to be made before issues such as low availability or low warehouse consumption become apparent.

The study includes a literature review and industry expert interviews which provide a foundation for the quantitative analysis. The quantitative section utilizes the Action Design Research framework for developing the calculation model, where iterative versions are produced, evaluated, and modified according to practical considerations of the case organization. The aim is to produce a solution that solves a real-life challenge of evaluating the current ATO offering, calculating suggested changes, and implementing these suggestions in practice. Results of the calculation model were evaluated by industry experts in workshops, to highlight challenges in the implementation phase.

The key findings of this study are both theoretical and practical. The theoretical findings highlight the parameters to be considered when defining a calculated offering and the importance of defining the key parameters that are used to determine which items to stock. The practical findings highlight the many factors which need to be considered when implementing such a tool in practice. These include tacit knowledge, data reliability, the workload of manual reviews, as well as the ease of using and understanding the final solution and its results in practice.

A key outcome of this study is the practical calculation model and its implementation process for the case company. The calculation model is a comprehensive tool for ATO offering management: Calculated suggestions are manually reviewed to ensure changes implemented are feasible. From the academic perspective, the conclusions of this study underscore the combination of theoretical and practical considerations for ATO offering management: To successfully develop and implement a solution to manage the ATO offering in a practical context, theoretical ideas need to be applied, practically tested, evaluated, and developed iteratively.