PART 1
The Spare Parts Management System
| SPARESOLOGY® STRUCTURE |
| 1. The Spare Parts Management System |
| Understanding Spare Parts | Finance | Policies & Processes | Parts Identification | Best Practices |
| 2. Create & Stock |
| • Deciding What to Stock |
| • Spare Parts Standardization |
| • Capital Equipment |
| • First Time Buy |
| • Critical Spare Parts |
| • Setting the Re-Order Point |
| • Setting the Re-Order Quantity |
| 3. Operations |
| • Forecasting |
| • Inventory Optimization |
| • Managing Repairable Spares |
| • Storeroom Management |
| • Data Management and Cleansing |
| • Inventory Accuracy |
| • Conducting Stock Takes |
| • Bar Coding |
| • Integrating Maintenance and Spare Parts Management |
| • Bills of Material |
| • Spare Parts Procurement |
| 4. Obsolescence and Disposal |
| • Managing Obsolescence |
| • End of Life Management |
| • Last Time Buy |
| • Spare Parts Disposal |
1.1 Your Management Systems Either Are Designed or Evolve Randomly
It doesn’t really matter what part of your business that you work in; there will be a system for addressing the key things that need to be done. In production planning there will be a way that demand and capacity are identified, prioritized, and scheduled. In procurement there will be a way that purchase orders are assessed, vendors selected, and invoices matched. In spare parts management there will be a way that decisions are made on what to stock and how many to stock. We all know this to be true because these tasks are completed on an almost daily basis.
What is less certain is whether the system in use is the most effective and efficient way to get the job done. This is because the systems that are in place today either are deliberately designed or have evolved randomly. Of course, not all “designed systems” are perfect or even fully effective, but there is a reasonably good chance that a designed system will outperform a random system every day of the week. This raises the question of who would allow themselves to have a system that has evolved randomly?
Well, unfortunately, too many companies do. In fact, in our research,1 almost 50% of companies score their development of spare parts management policies as either “no defined, formal inventory policies” or “broad-based corporate-level policy.” With either response those companies are saying that they have no specific set of policies that have been designed for day-to-day application in helping them manage their spare parts inventory. Wow!
But it doesn’t stop there. When we dig down to ask about the development and implementation of a specific spare parts stocking policy, that is, a policy to guide the decisions first on whether or not to stock an item and then on how many to stock, the number of respondents that have nothing in place jumps to a massive 75%! Double wow!
Is it any wonder then that companies find themselves so massively overstocked with spare parts and MRO (maintenance, repair, and operations) inventory, while at the same time having low levels of trust, that they hold the items that they really need? Of course not, especially once we understand that their decision-making system has evolved randomly and so delivers random results.
So what about those companies that have actually taken the time and effort to design a system for spare parts decision making? In our research we segmented the respondents based on their scores in terms of spare parts inventory management results (top performers having steady or decreasing inventory levels, high stock turns, and a low number of stockouts). We found that 75% of the top quintile (in terms of results achieved) had designed and implemented a spare parts management policy. However, we also found that 86% of the bottom quintile had not.
The difference in performance between the top and bottom performers is quite stark in terms of key spare parts management metrics, and so is the approach that they have taken for developing their spare parts inventory management systems. The top performers overwhelmingly design their systems, whereas the bottom performers have allowed theirs to evolve randomly. (These research findings are discussed further in Section 1.18, “Best Practice Spare Parts Management Research.”)
Part 1 of this book discusses the need to mindfully and deliberately develop your spare parts inventory management system. As a background to this, we explore the differences between the typical inventory types such as raw materials, work in progress, finished goods, retail inventory, and spare parts. This understanding helps explain why some of the tools and techniques that are widely used in most supply chain management situations just don’t work with spare parts inventories that are held by companies to support their maintenance and operations activities. Speaking of maintenance, it is also important to understand spare parts in the context of the end users, which is most often the maintenance and reliability function. Another contextual issue is understanding the financial considerations of spare parts inventory management; after all, no matter how they are accounted for, spare parts do cost money.
Having laid that groundwork, we shift our focus to the nitty-gritty of establishing a spare parts inventory management system. This includes understanding the minimum requirements for a workable system, establishing an identification system and management policies, and finally understanding the aforementioned best practice.
1.2 What Are MRO and Spare Parts?
Libraries, bookstores, and the Internet are filled with books, blogs, magazines, training courses, information, and experts that can detail the chapter and verse relating to supply chain and inventory management. However, as you will soon see in this book, the standard theories and formula for inventory and supply chain management do not apply to MRO and spare parts. This is explained in detail in Section 1.3. However, before progressing further, it is important to be clear about the type of inventory that this book does address.
The key is to understand that all inventories are not the same, at least that their characteristics and dynamics are not the same. Figure 1.1 shows a simplified supply chain that could be applied to almost any goods but here follows a path for the items that become MRO and spare parts inventory. This figure shows
