Software

To CMMS or to ERP?

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

By David Berger, P.Eng., contributing editor

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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David Berger, a Certified Management Consultant (C.M.C.) registered in Ontario, Canada, is a Principal of Western Management Consultants, based in the Toronto officeDavid Berger, a Certified Management Consultant (C.M.C.) registered in Ontario, Canada, is a Principal of Western Management Consultants, based in the Toronto office. David has written more than 200 articles on a variety of topics such as maintenance management, operations management, information technology, e-commerce, organizational design, and strategy. In Plant Services magazine, he has written a monthly column on maintenance management in the United States, as well as three very extensive reviews of maintenance management systems available in North America. David has done extensive work in the areas of strategy, information technology and business process re-engineering. He can be reached at david@wmc.on.ca.
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Obsolescence: Most CMMS vendors provide at least a simple aging report that shows which parts have not moved for a given period in order to isolate and eliminate parts that are no longer needed. This report is misleading to some extent. Even if the probability of requiring these parts is low, they may be difficult to source within a reasonable period of time. Thus, the cost of the resultant downtime easily justifies the cost of keeping the part on hand. Factors to consider before removing a part from stores would be:

  • dollar value
  • space requirements
  • shelf life
  • part availability
  • uniqueness of part (e.g., number of suppliers, ease of fabrication)
  • lead time
  • probability of failure
  • impact on operations and maintenance if part not readily available.

Cost of rush orders: Although this measure is not always relevant, companies are often surprised at just how much they spend on rush orders. This is especially true for companies in remote locations or with extensive off-hour operations, for which sourcing parts is more expensive. Look for a CMMS package that allows users to flag rush orders and track extra costs associated with them, such as a premium paid on the product cost, the additional shipping costs, and any added internal costs like overtime.

Procurement cost: We have probably all heard some variation on the theme as stated by many purchasing departments that the cost of purchasing any given item, from pencils to pumps, is $X per item. The value of X varies but is always some eye-popping number, typically in the neighbourhood of $100 these days. In other words, think twice about the relationship between stock levels and the frequency and quantity of orders. This trade-off is further complicated by other factors such as the cost of storage and retrieval, reorder quantity discounts for volume or dollars spent, and other variables.

Supplier history: Optimizing your parts management function requires a solid understanding of supplier history. This is critical to avoid unnecessary dollars spent, delays in service, and quality problems. CMMS packages use two basic approaches to supplier evaluation. The first is tracking actual measures such as:

  • damaged goods shipped (dollar value and frequency)
  • overshipments
  • undershipments
  • substitutions
  • late shipments (average delay, dollar value, and frequency)
  • average price increase/decrease for a given period.

The second approach uses a more qualitative scoring, either based on user-defined ranges for the actual measures above or simply entered manually by the users. Scoring is typically a numeric value such as 1 for extremely proficient and 7 for completely unacceptable. Vendors may be evaluated on factors such as:

  • quality of goods shipped
  • response time
  • customer service experience
  • competitive pricing.
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Response time: Every CMMS uses a variety of status fields including ones relevant to spare parts management. Status changes are time- and date-stamped for calculating and tracking measures such as average time it takes to process a purchase requisition, actual versus expected lead time, and average time from receipt of a part to placement on a shelf. The more sophisticated CMMS packages have comprehensive workflow engines that can be used to not only track many more measures, but also to display standard versus actual times for a given process, and even send notifications regarding key milestones. For example, an email can be sent automatically to the scheduler in order to expedite a critical part, if it is not received at least three days in advance of the date scheduled to be used.