To CMMS or to ERP?

David Berger says optimize spare parts management with the most appropriate software.

By David Berger, P.Eng., contributing editor

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For many companies, asset management is more about the equipment and less about the spare parts that are inventoried at great expense and used as required for maintenance purposes. Furthermore, in some cases, very separate departments are responsible for asset management and spare parts management, making it difficult to optimize either function. Each of the two functions may deploy the same fully integrated system; however, roles and responsibilities across integrated processes are still unclear.

For companies big or small that have purchased a best-of-breed CMMS, one of the classic debates is whether to run spare parts management from within the CMMS or through the ERP system’s Materials Management and Procurement modules. There will always be a point of integration between the two systems. The question is where to draw the line in the sand.

From my experience, most companies would benefit from running spare parts management through the CMMS. Similarly, I find the best organizational design for most companies is to have those responsible for spare parts inventory (e.g., stockkeepers) reporting to the maintenance organization and spare parts procurement specialists reporting at least dotted line to maintenance. This is because it is difficult to expect the maintenance department to have full accountability for optimizing quality of work, service levels, and the cost of maintaining assets, if they are not given some level of control over managing spare parts.

Key performance measures

Modern CMMS packages have powerful tools to support stakeholders at all levels in tracking and analyzing the extensive data available. This includes standard reports and queries that can be tailored to each role in the organization. Reporting and analysis tools can be filtered and sorted on a multitude of criteria, for example, all parts for rotating equipment in the western division that have not moved in the past six months sorted by dollar value.

Many companies are overwhelmed by the infinite ways to configure the CMMS. The key is to think about your objectives in light of the overall company direction and establish measures that will define success. Perhaps your company is intent on reducing costs to stay competitive. This will drive a set of measures such as inventory level or annual procurement cost per unit. Some companies may be focused on customer service, in which case measures such as service level and response time should be considered. Key measures relating to spare parts management are described below.

Inventory level and service level: Two of the most important measures relating to spare parts are inventory level and service level. This is because any change in one will result in a corresponding change in the other. Thus, the two measures trade off and both must be carefully monitored. Inventory level represents the dollar value of spare parts, typically using average cost. As well, inventory level is usually sliced and diced by such groupings as part type, ABC classification, aging, and so on.

Service level is expressed as a percentage and is the reciprocal of stockout percent. For example, if 10% of the time users experience a stockout when a part is required, then the service level is 90%. Service levels are also grouped, sorted, and filtered in the same manner as inventory level, in order to better understand the tradeoffs.

The relationship between these two measures is not a straight line. If you move from 60% to 65% improvement in service level for C-class parts, then expect a nominal increase in inventory levels. However, if you increase service levels for A-class items from, say, 95% to 96%, expect a significant change in inventory levels to sustain it. This is because, in theory, as you approach a 100% service level, the corresponding inventory level approaches infinity.

The best way to determine the optimum trade-off between service and inventory levels is to understand usage patterns, through constant tracking and analysis of historical data, as well as trial and error. The better CMMS packages provide sufficient functionality to facilitate this process. Optimization comes from fine-tuning the minimum stock level, maximum level, reorder point, reorder quantity, and lead time, especially critical parts whose failure result in the more catastrophic consequences.

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