Coming to Grips with Spare Parts Inventory
Dr Jody Muelaner posted on November 25, 2019 |

No manufacturer wants their production machinery to break down. Preventive maintenance is designed to avoid expensive interruptions to operations. However, some failures can’t be avoided. When a machine does break down, having the right spare part in the factory store can enable a much more rapid repair, but this goes against the principle of keeping inventory as small as possible. There is a trade-off between reducing the cost involved in a large inventory of spare parts and the cost of production stoppages. Waiting long periods of time for a spare part to arrive can be very expensive if production is stopped.

Manufacturers need a systematic way of determining which spare parts for production machinery to keep in stock. This must include determining the likelihood of each part failing as well as how the failure of the part would affect production. This combination of the likelihood and the effect is known as the criticality of the part. A Critical Spares Review is a systematic way of performing the trade-off analysis between criticality and the cost of inventory.

Considering this problem from first principles, each spare part could be considered individually. Multiplying the cost of an event by its likelihood gives an expected cost. The cost of a part breaking can be estimated based on the impact on production and time required to replace it. Multiplying this by the probability of the part failing gives the expected cost of the part failing for a given period of time. If the cost is higher than the inventory cost for the part, then it should be kept in stock. If the costs and probabilities can be accurately assessed for every part, this approach will give a definitive answer as to whether or not you should stock the part. However, in reality, it’s not easy to assess the costs involved in waiting for the spare part or probability of the part failing. When you consider that a production system might have many thousands of spare parts that could potentially be stocked, it becomes clear that this approach may not be practical. Methods of estimating the criticality of parts and making judgement calls are therefore required.

In many more traditional factories, the engineering store doesn’t follow any defined system. Based on their own experience, a store person might develop their own system that they use to decide what to keep in stock. Such a system may be undocumented and difficult for other people in the organization to understand or challenge. This can put the store person in a strong position, both in terms of job security and politically within the organization. If people don’t understand how the store person decides which parts to stock, it becomes possible for parts to be either available or not available based on personal politics. Many engineers have experienced the frustration of being given an unchallengeable reason why they can’t get what they need to progress their work. Thankfully, this type of situation is largely a thing of the past. Over the last 30 years, supply chain management principles have been increasingly used within engineering stores, facilitated by the introduction of Computerized Maintenance Management Software (CMMS) systems. It is a requirement of ISO 55000 that companies demonstrate the management of assets, including spare parts. This means managing inventory data, with procedures for cataloguing and purchasing, as well as demonstrating risk-based decisions.

Assessing Criticality

Assessing the criticality of parts is the first step in both the planning of preventive maintenance schedules and critical spares review to determine which spare parts should be stocked. Data generated detailing the criticality of spare parts may be stored and used within an integrated strategy for Maintenance, Repair and Operations (MRO) or Maintenance, Repair and Operating Materials (MROM). When carried out as the first stage of a critical spares review, criticality assessment is used to determine the impact on operations of a failed part not being immediately available to enable replacement.

The first stage in a critical spares review is to create an asset register, listing all spare parts. Criticality assessment for each part considers two basic elements: the impact on production if the part fails and its likelihood of failure. This is very similar to a risk assessment. Other considerations such as safety and environment may also be used to determine criticality. Parts are then divided into categories such as vital, essential, desirable and noncritical.

It is typical to perform a quick review of all parts to identify the parts with high failure impact or a high likelihood of failure. Specific methods are used to analyse each of these in more depth. Highly critical assets should be subjected to full failure modes effects and criticality analysis (FMECA) or reliability centred maintenance(RCM). The less critical spares may also be analysed further but using simpler and less time-consuming methods, for example review of existing maintenance (REM).

Software tools, such as DST’s Inventory Optimizer, provide the most rigorous way to analyze optimum stock levels although spreadsheet-based tools can also often be used. A complete analysis will consider factors such as populations, failure rates, part cost for both planned and emergency purchase, stock-out costs, planned and emergency lead times, probability of repair and associated repair times and costs, and holding costs. Parts that are rarely required and have moderate value can be evaluated using a Poisson distribution with penalty costs. Parts that are required more frequently can be evaluated using a Poisson distribution with a service level.

Parts that will need particular consideration are those which are rarely required but significantly affect production when they do fail, fail at unpredictable times, have significant value and have long lead times. Critical spares that are required regularly and have a relatively low value can be easily managed using statistical inventory analysis. Traditional inventory management best practice would identify stock that has not moved in two or three years as being obsolete. However, for certain critical spares that may fail unpredictably after long time periods, it may be necessary to stock replacement parts for much longer time periods than. A critical spares review provides a method of demonstrating that this will result in lower overall costs to the organization.


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