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Managing your spare parts inventory is a critical component of efficient and cost-effective operations for businesses across various industries. Whether it's manufacturing, automotive, or even the IT sector, having the right spare parts readily available and effectively managing inventory levels can significantly impact a company's bottom line.
These practices involve the strategic procurement, storage, and distribution of spare parts to ensure minimal downtime, optimal equipment performance, and cost savings. In this dynamic and competitive business landscape, mastering spare parts and inventory management is essential for staying ahead of the curve and delivering superior products and services to customers.
Having conducted more than 80+ courses, Ramsoft (UK) has been training and consulting with companies to improve their management of spare parts over the past 10 years. We have found the same issues in all industrial sectors; however, some sectors seem to be worse than others.
This article will present a six-step improvement process for an existing site, as shown in Fig. 1:
Although, we have identified a total of 38 tactics to improve the management of spares, the greatest opportunities for an existing site arise from the following five tactics:
The key to the above tactics is to have an inventory catalogue that is accurate and to a high standard.
Savings can be significant, evident in the following example:
Step 1 starts with an assessment of current practices. Three main areas may be included in the audit:
In this article, we will focus mainly on cataloguing.
Good cataloguing should start in the project phase and continue through the item’s life cycle. Unfortunately, most companies do a poor job of creating their inventory catalogue. Poor cataloguing results in:
The main issues are:
Figure 2 shows one bearing example stocked in three different bins. Oonly by removing the non-alpha numeric characters from the Mfr’s P/N do the duplicates become obvious:
Following the audit of the procedures in step 1, a plan should be put in place to create or update existing procedure. We have defined a total of x procedures are required to fully manage spare parts. These can be grouped in the same section as the ISO 55000. We find most companies outside of the oil and gas section have poor procedure for requesting and purchasing initial spares and how to achieve good cataloguing.
There are several options to cleanse cataloguing data. But the main decisions to make are:
A database for data validation and cleansing links multiple tables to ensure governance by creating many Noun/Qualifier1/Qualifier2 templates, as well as the facility to build a master list of P/Ns. For a company with different warehouses, such a tool simplifies the cleansing for the second or third warehouse.
After Step 3, the cataloguing should be of a consistent format, and you can start to seek rationalization opportunities. Standardization requires setting out the company’s organizational strategies and can be categorized by equipment, manufacturer, or by the material of construction, and so on.
Without proper standardization, inventory will be higher, and hence, so will stock-holding value. A recent data-cleansing exercise revealed the company had bought equipment from both USA and Europe. This meant they had different drive-chain components to different standards, thus, resulting in a need to hold stock for both the DIN and ANSI standard.
Here is a small sample of caterpillar belts from a total of 540 belts (involving many OEMs) stocked by a large mining company. There is no information on the type, size, or cross section. Without more detail it is impossible to properly identify the duplicate belts. We see same issue with filters and other spare types.
To carry out this step, the stores team need to understand the different replenishment strategies. The two main ones are ROP and Min-ROP-Max. Which strategy to use is dependent on the EOQ (Economic Order Quantity). When EOQ is lower than the demand rate in the lead time, then Min-ROP-Max should be used. EOQ is also influenced by the average number of line items purchased on the same PO.
Most texts books define the basic formula but do not cover which strategy to use, neither do they define the process to optimize existing stock holding when the inventory may have 20,000 line items or more.
Key to the optimization process is to assign a criticality ranking to each spare part, which allows a %-service level to be defined to each spare, i.e., 99%, 98%, 95%, 90%, 85%. The service level influences the amount of safety stock to add.
For ROP-controlled inventory we aim to lower the average stock level value and for Min-ROP-Max and the Max Stock level Value.
It is important that sound formulas are used rather than rules of thumb. A review of a recent asset-management book stated the ROP should be 2-times the Usage in the Lead Time. This rule of thumb does not consider risk.
Figure 4 shows our evaluation of this rule. It is assumed the desired service level is 98% and the annual demand varies from 5 to 100. We can see that this formula gives a low service level for low annual demands (resulting in potential stock outs) and a very high service level for high annual demands (excessive stock-holding value).
Initial indicators of excess stock holding are:
Figure 5 shows an analysis of very high K values, indicating excess stock:
Figure 6 shows one example from a large chemical plant and the actual max stock level, the calculated (optimized) and the proposed max level. This resulted in a reduction in max stock level value of $88,179, and this was considered conservative.
Note, although calculations for optimization can be obtained in bulk, the review to make stock changes is carried out item by item.
Step 6 includes several tactics such as:
We have shown a proven process to reduce inventory, which can result in significant savings. Over the past 20 years Ramsoft (UK) have trained 1000’s of delegates in maintenance, reliability, and spares. However, we have primarily focused only on the effective management of spare parts.
Most of the professionals we have traied all have similar issues with inventory management, which is why in our main training course, titled "Effective Spare Parts Management & Inventory Reduction", we add the disclaimer that "Savings are guaranteed". This the only course for which we have ever made this claim.
Give this step-by-step plan a try at your facility and let us know your results.