Spare Parts Inventory Management. Phillip Slater

Introduction

      Where do I start? This was the thought going through my mind as I looked at the pile of junk that represented the spare parts supply for the factory for which I was now responsible. As the newly appointed plant engineer for a plastics packaging producer in Melbourne, Australia, I had quite a number of issues to address, and I knew that “fixing” maintenance at this site meant that the spare parts management needed urgent attention.

      This wasn’t my first visit to this site, and I knew exactly what I had walked into because my appointment was actually a transfer from a sister site in Sydney. As the maintenance engineer in Sydney, I was a customer of the storeroom function. As the plant engineer in Melbourne, I was now the custodian. In addition to maintenance and engineering, I was now responsible for spare parts management, and that included the pile of junk in the corner.

      In Sydney I had successfully transformed the maintenance function from an old-style “craft-based” approach to a more modern “scientific” approach that these days would be referred to as reliability-centered maintenance (RCM). (Note that this was the mid-to-late 1980s and the term RCM, while known in some industries, was not as widely used in those days.) The result of this transformation was a significant improvement in uptime, which in a business that operates 24/7 is like putting money in the bank. Subsequently I was asked to move to Melbourne and transform that plant also. Looking at that pile of junk in the corner, I was wondering just what I had got myself into.

      As it turned out, it was this situation that provided for me the fundamental understanding of operations management, maintenance, and spare parts that became the foundation for much of my career—and that enabled me, nearly 30 years later, to write this book.

      Fixing maintenance at the Melbourne plant required me to gain an understanding, and oversee the management, of all aspects of spare parts inventory management, including:

      1. The establishment of a spare parts management system

      2. The create and stocking phase

      3. The operational phase

      4. The management of obsolescence and disposal

      These are the four key aspects of spare parts management that span the spare parts life cycle. They are also fundamental to the idea of “Sparesology.”

      Sparesology^® is a term I coined as a shortcut for the discipline of optimizing the physical, financial, process, and human resource management of spare parts. Sparesology is more than just inventory optimization. Sparesology requires an understanding of the complete ecosystem within which spare parts are managed, and it seeks to ensure that all factors influencing spare parts management outcomes work in concert to achieve an organization’s goals. It is this background, philosophy, and perspective that has informed the structure of this book.

      The Structure of This Book

      This book is set out in four parts, in an order that reflects the process required during the spare parts management life cycle. These are:

      Part 1: “The Spare Parts Management System”

      Part 2: “Create and Stock”

      Part 3: “Operations”

      Part 4: “Obsolescence and Disposal”

      This structure is shown diagrammatically in Figure I.1.

      Figure I.1

      Part 1: The Spare Parts Management System

      The spare parts management system guides the activity and decision making throughout the life cycle of the spare parts held in inventory. It is vital that the people engaged in establishing this system understand spare parts management, not just supply chain or generic inventory management. The reasons for this are explored in Part 1.

      The other key considerations in this phase are understanding the financial implications, developing the policies and processes that provide the framework for action and decision making, and establishing a robust parts identification system. In addition, an understanding of best practices will help ensure that you are working from established principles and practices that deliver the best outcomes. These are all covered in Part 1.

      Part 2: Create and Stock

      The two most important decisions in spare parts inventory management are whether or not to stock an item and how many to stock. It is these decisions that determine if you have the stock that you need and how much money you spend on your inventory. It is in this phase of the life cycle that a company has the greatest influence on its spare parts inventory, and getting these questions “right” for your circumstance makes everything else that follows that much easier (but not necessarily easy!).

      What is most curious about these two decisions, however, is how few companies have properly developed guidelines on the process and tools to use to make these decisions. These should be elements of the policies established as part of your spare parts management system. The problem is that, too often, when there is a policy, the guidelines are vague or nonspecific. For example, they may suggest the collection of appropriate data such as usage and lead time, which is a good start, but then provide no guidance on what to do with this information—that is, how to actually make the stock-holding decision. The intent is right, but the guidance on execution lets it down. Here in Part 2 there is definitive guidance on how to set both the reorder point and the reorder quantity, using a technique that can be applied on a daily basis with little or no software.

      Before getting to that, however, it is important to understand the range of issues that will most often derail the “stock–don’t stock” and “how-many” decision process. These include issues such as standardization, capital equipment and the first-time buy, so-called free spares that come with capital purchases, and spare parts criticality. These are all covered in Part 2.

      Part 3: The Operations Phase

      Following the create and stock phase, the longest part of the spare parts life cycle is the operations phase. While the decision to create an item and stock it in the inventory may be made in minutes, the item can then be part of the inventory for years or even decades. During