are not equal in terms of value to the organization and then trying to ensure that the inventory mix reflects the criteria of importance. Typically, ABC analysis is based on sales volume, gross profit, or value. With spare parts inventory we know that service levels are not appropriate, stock turn only works at an aggregate level, there is no profit margin as the spare parts are used in your own plant, and volume and value measures ignore criticality. Therefore, ABC analysis is just not appropriate; it’s better to ensure that you have appropriate categorization for guiding your decision making.
Putting aside all the technical reasons why these techniques don’t work, there is one very good reason why you should not try to apply these techniques: employee confidence. Attempts to apply these techniques will cost you time, effort, and money, and because they don’t work effectively with spare parts, they will also cost you the trust that your spare parts management system can deliver the parts required when needed. And that might just be the greatest cost of all.
1.5 The Number One Problem with Spare Parts Inventory Management
Engineering spare parts management is a big topic, and managing a spare parts inventory involves engaging with lots of participants from different parts of the business. This means that there is plenty of opportunity for things to go wrong. And that may be one of the complications that make this task more difficult than it superficially appears.
So what do you think is the biggest problem in engineering spare parts management? This is a question that I ask at the beginning of almost every workshop and training event. Given the range of personnel involved in spare parts inventory management, it is perhaps no surprise that I get a wide range of responses. Here is a list from one recent session:
• Satellite stores
• Rotable spares management
• Lead time variability
• Stockouts
• Engaging operations
• Determining criticality
• Availability
• Redundant stock
• Logistics
• Cannibalized spares
• Location mix-up
That’s quite a list!
These responses could be sorted into a number of different categories, such as structure (e.g., satellite stores), process (e.g., rotable spares management, logistics), and outcomes (e.g., stockouts, availability). There may even be other categories or ways to break down this list. However, despite these issues being quite universal, identifying and grouping them doesn’t really help us identify the number one problem with spare parts inventory management. To identify the number one problem, we need to look for a theme that is evident in each of these issues.
One theme that is evident in almost all these issues is uncertainty. For example, the typical reason that rotable spare parts management is an issue is that there is uncertainty about the spares usage requirements, the repair time, and the reliability of the repaired item—sometimes all three! We could say something similar about lead time variability (uncertain by definition), determining criticality, stockouts, availability, redundant stock, and location mix-ups.
Another possible theme is communication. One reason that many items on this list become an issue revolves around the communication (or lack of) that occurs. This is obvious with items such as engaging operations, logistics, and even cannibalized spares and location mix-ups.
While uncertainty and communication are clear issues with spare parts inventory management, in my opinion the number one problem is how people deal with that uncertainty and lack of communication. Uncertainty and poor communication represent information gaps, and almost universally the way that people fill those information gaps is by guessing.
Therefore, I think that the number one problem in spare parts inventory management is guesswork!
The Merriam-Webster Learner’s Dictionary defines guesswork as: The act or process of finding an answer by guessing.
Guessing is further defined as:
To form an opinion or give an answer about something when you do not know much or anything about it.
Many people reading this will be outraged. How dare I say that their work is based on giving an answer when they don’t know much about it! In fact, it is even worse than that because the answer that is based on guesswork is often cloaked in the guise of management science. It is this guise of management science that helps people pretend that they are not really guessing. But consider the following.
How often have you heard someone justify a position on inventory stocking levels by saying:
• It’s based on the formula, or
• It’s based on our historic data, or
• Our forecast shows . . .
Or something similar?
Often the statement is made as if the statement itself were a full justification. Each of these things may be true (and are based at some level on management science), but they also each involve some degree of guesswork. For example:
• Many people use the wrong formula for determining their stock level; they are guessing that they should use (say) a Gaussian function (most typical) when maybe the function should be Poisson based, or maybe neither.
• Many people have extensive historic data on their spare parts, but that data doesn’t actually reflect the real demand history—though these people are assuming (guessing) that it does. Their data usually reflects the movement of spares out of the storeroom, not the use of those spares on their equipment.
• By their nature, all forecasts are based on assumptions—which, in effect, make any forecast a guess. Even worse, many people don’t even try to determine the likely basis of future demand for the item; they merely extrapolate the past into the future without necessarily questioning if that is an appropriate approach to take. This is the basis of most software packages. The use of software makes it easy to abdicate responsibility for decision making.
• The granddaddy of all guesses is the ill-informed assumption that spare parts inventory management follows the same rules as other types of inventory management. This is the underlying assumption that is at the heart of statements, often made by accountants, that there should be a clear-out of any spare part that hasn’t moved in two years.
Someone once said that all management problems end up in the warehouse. By this they meant that the warehouse (or storeroom) becomes the place that provides the buffer for problems that are actually created elsewhere. These are problems with issues such as the setup of satellite stores, rotable spares management, lead time variability, stockouts, operations engagement, determination of criticality, spare parts availability, management of redundant stock, logistics, cannibalization of spares, and location mix-ups. These issues are “managed” by stocking more inventory than would be needed if the issues were properly addressed.
When considering engineering spare parts, used to support operations through returning failed equipment to a fully operational state, it is fundamental to establishing a reliability and maintenance system that you consider
