Trim the fat from your spare-parts inventory

A leaner approach to inventory management can cut costs and clear clutter.

By Wally Wilson, LCE

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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 commonly is used on an annual basis. The remaining share 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 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 one of a kind, or have an immediate effect on safety, the 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 falls to zero, the risk factor rises very high. If another equipment failure were to occur that required this part, your facility would be in trouble.

You can reduce this exposure to risk with a reliability-centered maintenance (RCM) program to monitor your equipment’s health. An RCM program monitors equipment performance and, through vibration analysis, thermography, and other methods, identifies components that are approaching the end of their service life. When these repairs are identified, the work can then be planned and scheduled and the critical spares reordered to eliminate or reduce the incidence of an inventory stockout 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.”

Vendor-managed inventory

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.

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