Spare Parts Inventory Management. Phillip Slater
Reality of Maintenance and Spare Parts
This maintenance belief is only theoretically correct, because, theoretically, if the maintenance system can be made sufficiently sophisticated that it can reliably forecast spare parts needs, then a company could optimize its spare parts to suit its maintenance needs.
The reality, however, is that this maintenance-driven belief doesn’t work in practice for two reasons:
1. Most maintenance systems contain systemic flaws or shortcuts that make them incapable of providing the required data at the required quality.
2. Similarly, most spare parts management systems are as flawed as the maintenance systems they support.
Therefore, significant improvements in spare parts holdings can be achieved without doing anything to the maintenance systems, and this can lead to significant spare parts and procurement savings with no negative operational results.
Yes, you read that correctly. Most companies can optimize their spare parts inventory for the environment in which they operate without actually changing anything about the way they do maintenance or negatively impacting their service to maintenance.
This is because most spare parts decision making is ad hoc and emotionally based, there is little or no structure or system to the way stockholding decisions are made, and terms such as safety stock, reorder point (ROP), and min (as in max and min) are used interchangeably when they are not interchangeable. This all means that the actual stock levels become a matter of opinion that has no standard against which to compare. In addition, genuine periodic reviews of spare parts levels, so that they may be adjusted to current expectations, either are almost nonexistent or focus on single issues such as slow-moving stock. Furthermore, there is usually some form of behavioral “blame game” around stockouts that drives overstocking rather than continual improvement.
This Is Supported by Research
This situation is demonstrated in the results from a spare parts management quiz that SparePartsKnowHow.com has recently been running online. The quiz assesses a company’s approach to spare parts inventory management based on seven simple questions. At the time of this writing, the quiz has been taken more than 360 times, which is more than enough to remove any small sample bias. Here is what the quiz results show:
• 70% of companies say that they don’t consistently provide guidance on how to determine both the reorder point and reorder quantity. Only 30% say that they do this always.
• 68% of companies say that they don’t consistently provide guidance on whether or not to stock an item. Only 32% say that they do this always.
• 64% of companies say that they don’t review inventory holdings as part of a formal plan of continuous improvement. Only 36% say that they do this at least annually.
So if there is no standardized approach for deciding what to stock, no standardized approach for deciding how many to stock, and no review of the current validity of past decisions, is it any wonder that spare parts stock holdings are much higher than they ought to be? Some companies can be overstocked by more than 100%!
How a Spare Parts Review Can Actually Improve Maintenance
In a recent case,2 a company that reviewed its spare parts holdings, and introduced a decision-making policy and process, reduced its inventory holdings by an average of 42% across four locations, in three countries, in just six months. At the worst location (in terms of stocking), the inventory reduction exceeded 50% (which equates to being overstocked by more than 100%). At the same time, the anecdotal feedback was that the company improved its parts availability. This was because quality decision making that sets appropriate holding levels works both ways: it establishes the right inventory at the right time.
Could an overhaul of its maintenance systems have improved the availability and reliability of spare parts data and so help in getting the holding levels even lower? Of course. But it would take years to stabilize the maintenance system and collect reliable data. Is the maintenance improvement necessary in order to achieve a significant reduction in spares holdings while simultaneously improving spare parts availability? Absolutely not. In fact, establishing the method for determining stock holdings, and the subsequent interrogation of spare parts holdings, actually forces the maintenance team to think about its needs, and so the spare parts project actually improves maintenance!
The Elephant in Your Storeroom
Most people have heard about the bull in the china shop, but have you heard about the elephant in your storeroom? This is not a mythical five-ton mammal, feasting on your critical spares in the dark corners of your warehouse, but a reference to the perceptions of the players involved with the effective management of spare parts. To explain this, let’s revisit the story about six blind men examining an elephant.3
One day an elephant walks into a village. This was not “elephant country,” and while the people of the village were all educated and experienced in their own region, they had never heard of an elephant. The arrival of this curious beast excited the whole village, and a group of six blind men decided to find out for themselves just what this elephant was.
They made their way through the crowd, and each touched a different part of the elephant.
“Hey, the elephant is a like a tree,” cried the first blind man as he touched the elephant’s leg.
“No, it is more like a rope,” said the second blind man who touched the tail.
“I think that it is like a thick snake,” chimed in the third as he touched the trunk of the elephant.
“A snake? No, it’s flat like a banana leaf fan,” said the fourth man, who was touching the ear of the elephant.
“A banana leaf? Are you mad? It is more like a huge wall,” laughed the fifth man, feeling the side of the elephant.
“I don’t know what you are all feeling, but this elephant feels to me like a solid pole,” said the sixth man, who touched the tusk of the elephant.
They began to yell at each other and argue about the elephant, with each one of them insisting that he was right. A wise man was passing by, and disturbed by the raised voices, he stopped and asked them, “What are you blind men arguing about?”
Almost in unison they said, “We cannot agree about what the elephant is like.”
They each told the wise man what they could feel, and the wise man immediately recognized the problem. Calmly he explained to them, “All of you are right. The reason every one of you is telling it differently is because each of you has touched a different part of the elephant. So actually the elephant has all those features.”
Understanding this, the blind men stopped arguing and started listening. They listened as each of them described in detail what he could feel, and before too long, these men who had never seen an elephant understood exactly what it was.
What Does This Have to Do with Your Storeroom?
One feature of the modern corporation is the departmentalization of functions. Companies do this to both create operational efficiencies and manage the span of management control. Thus most organizations will have, among others, an operations group, maintenance department, storeroom and logistics, purchasing and procurement, and finance. But what happens when these functions overlap? This is the elephant in your storeroom, and its name is the maintenance materials and spare parts inventory.
Each of the different corporate functions mentioned has an influence on your materials and spare parts management outcomes. Yet each operates independently, often with little incentive to coordinate activities to improve the overall business results. This is classically called functional silos, with each group doing what it thinks is needed, based on what each sees. In effect, each functional group looks at the same activity and literally sees different things. (For more on silos go to Section 3.9, “Integrated Maintenance and Spare Parts Management.”)
The storekeepers see a bunch of SKUs (stock keeping units) that they have to receive, store, issue, count,