Pursuing a Leaner Spare Parts Inventory
By Wally Wilson, CMRP, CPIM, Life Cycle Engineering
Most organizations have a significant financial investment in spare parts Maintenance, Repair and Operations (MRO) storeroom inventory. Yet only about 8-10% of this investment is commonly used on an annual basis. The remaining 90 to 92% of the inventory consists of critical spares and slow-moving, excess, or obsolete parts. Let’s first examine what makes up the 90-92% portion of inventory and then consider some strategies that can reduce the overall investment required to keep production operating without unnecessary downtime.
Critical spare parts are items that have an excessively long order lead time; are a one-of-a-kind part; or have an immediate effect on safety, environment or production. In most cases, critical spare parts must be available in the MRO inventory 100% of the time. When a critical spare is put into service and the on-hand inventory level is reduced to zero, the risk factor goes to very high if another equipment failure were to occur that requires this part.
You can reduce this exposure to risk with a Reliability Centered Maintenance (RCM) program to monitor the health of your equipment. An RCM program monitors equipment performance and identifies components that are approaching the end of their service life through vibration analysis, thermography, etc. When these repairs are identified the work can then be planned and scheduled and the critical spares re-ordered to eliminate or reduce the incidence of an inventory stock-out and additional production downtime.
Slow-moving inventory items are parts that are used only once a year or maybe every other year. These parts are often held in inventory for a “just-in-case” equipment failure. Regardless of the intention, these are parts that could be ordered on demand as needed and not stocked in inventory.
Excess inventory is much the same situation. Excess inventory in store-stocked items accumulates when the on-hand quantity has exceeded the maximum stocking level. Spare parts are often purchased in large lot quantities to meet a price break or because someone believes that although they only need one item, they should buy three so they’ll have them on hand for the next breakdown. These situations are repeated many times over in an environment where equipment reliability is low and production downtime is high.
How can you reduce spare parts inventory?
The first step in determining how much spare parts inventory you need to support the production equipment is to understand the expected demand for those parts. Most decisions are made based on past inventory use. This method works well if you are just replenishing the existing inventory, but if you are monitoring inventory performance, this is a lagging indicator. Remember, most organizations only use 8% to 10% of their spare parts inventory on an annual basis. If you are pursuing a lean MRO inventory program, you need to understand how many months or years of inventory you currently have and what your target goal or leading indicator is for your inventory investment.
Critical spare-parts inventory
Critical spare parts generally account for about 80% of the inventory investment and up to 20% of the spare parts inventory. Because these are critical spares, it has been determined that the risk of not having these parts in inventory is very high. If we understand the mean time between repair (MTBR) for a critical spare and we can establish a partnership with a primary supplier, then that supplier could hold some of these parts and deliver them at a moment’s notice.
An example of a supplier partnership program would be for high-dollar motors. Several of my clients have negotiated contracts with their primary supplier to stock motors at the supplier’s site until they are needed. The supplier needs to be reliable, and you need to be proactive in identifying motors that are approaching the end of their service life. When I was a maintenance manager, my electricians always said, “Motors usually give you plenty of notice before they fail.”
Identify the high-use, low-dollar items that can be vendor-managed through point-of-use applications or vending machines. Items that are specific to a given maintenance shop, such as fuses used only by the electricians, pipe fittings used by pipe fitters, and particular nuts and bolts, are candidates for vendor-managed inventories. Vending machines are good for supplying personal protective equipment (PPE) and other consumables, too. The typical implementation of vending machines reduces consumption of these items by more than 20%. Both vendor-managed point-of-use programs and vending-machine applications provide a verifiable reduction in the total inventory investment.
Work management - Planning and scheduling
A structured work management program that proactively monitors equipment repair history and the MTBR for production equipment allows the repair work to be planned and scheduled. Planning and scheduling maintenance work creates a partnership with the MRO storeroom and makes the stores operation less reactive to daily equipment failures that result from a reactive maintenance environment. If the maintenance planner can forecast the demand for parts three to six months out, many of the stocking levels can be reduced or revised to a nonstock item.
Kitting of parts for planned work
Defining the requirements for spare parts can be very challenging. An accurate equipment bill of material (EBOM) is essential to sourcing and having the correct parts for the needed equipment repairs. The maintenance planner uses the EBOM to request parts for preventive maintenance (PM) activities, corrective equipment repairs, and equipment modifications. Securing these parts ahead of time and verifying that the parts are correct ensures a maintenance technician can perform the work without delay.
A secondary benefit of kitting planned work is the option to reduce the spare parts inventory investment. Having the projected forecast allows the storeroom to order many of these parts when requested, reducing the need for storage space, investment in, and management of those parts. An estimated 60% to 70% of these kitted parts fall into the 8% to 10% range of inventory usage on an annual basis.
Review stocking levels annually
Modification of production equipment and changes in demand of production output can initiate the need to reduce or eliminate the stocking levels for some spare parts. A structured management-of-change (MoC) process will help identify changes in demand for these spare parts and can provide the information for the storeroom to adjust the minimum/maximum reorder points to prevent overstocking.
Both of these situations are strategically beneficial to the business and to the storeroom. When communication of these changes doesn’t happen, the problem usually goes unnoticed until a review of the inventory is conducted. The MRO inventory should undergo an annual review to adjust stocking levels and update the EBOM. This activity should happen with input from maintenance, the maintenance planner, purchasing, and the storeroom.
The MRO inventory investment can be viewed as an asset or a liability. Adopting a strategic inventory management program provides the basis to better manage the inventory investment for your business. You want to invest in critical parts and required inventory without tying up money in unnecessary parts. Partnerships with reliable suppliers can help you reduce your investment while ensuring the correct parts are available at the right price, at the right time, in the right place, and in the right quantity.
About the Author: Wally Wilson
Wally Wilson, CMRP, CPIM, is a senior subject matter expert in materials management and work management planning & scheduling with Life Cycle Engineering. He has more than 30 years of experience in plant management with three Fortune 500 corporations and has helped domestic and international clients realize multimillion-dollar savings through lean inventory-management practices and MRO supply-chain optimization. Contact him at wwilson@LCE.com.