Effective Spare Parts

Management: 8 Rules
Tomas Hladik
Logio s.r.o., Prague, CZ
www.logio.cz
Efficient Spare Parts Management

SPARE PARTS
INVENTORY
MAINTENANCE MAINTENANCE
VOLUME VOLUME
SPARE PARTS
INVENTORY
Eight rules for efficient SPM

1) Go for preventive maintenance!

2) Eliminate process problems
3) Segment your spare parts portfolio
4) Evaluate spare parts criticality
5) Spare parts management starts with good forecasting
6) Use special methods for intermittent demand items
7) Consider the whole life cycle of your equipment
8) Implement a good information system for spare parts and
maintenance inventory management
Go for preventive maintenance
Go for preventive maintenance!

MAINTENANCE

PLANNED UNPLANNED

STANDARD PREDICTIVE DEFFERED CORRECTIVE

PLANNED PROACTIVE CORRECTIVE (REPAIRS)

INVENTORY
PLANNED PROCUREMENT
MANAGEMENT
Prevention or correction?

Number of preventive X corrective actions

Downtimes due to corrective maintenance – repairs

Total maintenance cost

Eliminate process problems
LIFE CYCLE OF A SP IN A COMPANY
 Eliminate process problems

SP NEED There is no direct responsibility of maintenance

IDENTIFICATION engineers/technicians for “their” items and spare parts levels.

RFO created by someone else, not by the technician who had

REQUEST
identified the need.
FOR ORDER
The step of creating RFO may not be necessary in the process.

How often are RFOs approved? Who approves?

Is RFO approved by means of IS workflow or by signing a paper
copy? Alternatively, are both ways needed?
RFO APPROVAL After RFO is approved, the issued order must be approved again.
Too many approvers, complicated approval procedure and
hierarchy of responsibilities.
Approving on high levels of management.
 Eliminate process problems

Insufficient information available to procurement, poor spare parts

PROCUREMENT identification – the buyer hardly knows what should be bought,
additional communication with maintenance technician is needed.
Missing or incomplete procurement specification in the IS.

Problems with missing (undelivered) documentation for the received

material (certificates, declarations).
RECEPTION
Only “paper-based” archiving of spare parts documentation.
Problems to find documentation when needed.

Insufficient identification of spare parts in the warehouse.

Problems with finding items stored in the warehouse.
Inventory count discrepancies, physical stock different from
WAREHOUSING
information system data.
Non-real value of stock in the information system.
Existence of out-of-system stocks.
 Eliminate process problems

Slow spare part issues in case of sudden need.

CONSUMPTION
Issued spare parts are not consumed in fact. What happens then?
Consumption of external material even in case the part is on stock.

Refurbished parts return to warehouse while new are bought.

WAREHOUSE Accounting price of refurbished items is much higher (or lower) than
RETURNS AND the non-realistic value of items on stock.
REFURBISHED Problematic or impossible returns of parts issued but not consumed.
SPARE PARTS Insufficient control of parts dismantled from the maintained object
(the information system has no information about these).
Spare parts’ life cycle – benchmarking

Internal best practice

Comparison of inventory turnover
0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
1 2 3 4

PLANT 1 PLANT 2 PLANT 3 PLANT 4

Segment your spare parts portfolio
Service level x locked-in capital

Inventory
value

90 % 95 % 98 % 99 % 100 %?
Service level / availability
ABC analysis – on hand inventory value

Value of available inventory

ABC analysis – consumed quantity

Quantity

In spare parts, C and D categories typically prevail

Spare parts inventories segmentation – consumption frequency
(in quantity)

Quantity
(pcs)
Spare parts inventories segmentation – consumption frequency
(in value)

Value
(CZK)
 Strategic segmentation of spare parts

WHEN? BUY BUY

HOW MANY? BUY BUY

CONSIDER
TYPE OF FORECAST

CONSIGNATION
CONSIGNATION
HOW MANY?
CONSIDER
CONSIGNATION
CONSIGNATION

CONSIDER
BUY BACK
CONSIGNATION
WHEN?
BUY CONSIGNATION

CONSUMPTION FREQUENCY
 Example of buyback application
20 pieces were purchased for turnaround in 2010 for 41.2 M CZK, but these spare parts
were not used during the turnaround and will be stored until the next turnaround in 2014.
Buy-back in this case can save 9 M CZK (360k EUR) on storage and locked-in capital cost

Between shutdowns
Evaluate spare parts criticality
 Criticality calculation

𝐶𝑖𝑛𝑣 = 𝐶𝑢𝑛 ∗ 𝐿𝑇 ∗ 𝑓
INVENTORY HOLDING UNAVAILABILITY LEAD TIME FAILURE RATE

10 000 EUR x 10% 100 EUR / day 100 days 1 per 2 years

1 000 EUR
< 5 000 EUR

KEEP ON STOCK
 Criticality assessment phases

Advanced methods Optimum

Hold on stock
to set optimal levels SP level

Preliminary Criticality
Potentially
assessment assessment
critical part

Technician Technician Consume

Do not stock Sell or
Scrap
Evaluate spare parts criticality
Price Part lifespan
% cost of capital Failure probability
Failure characteristics
Failure anticipation
Cost of
inventory Failure
holding probability

Leadtime and Impacts of

other spare part
parameters unavailability
Delivery time Effects of failure
Repairability Technical places
Possibility of maintenance Consequences of
planning unavailability
How to assess criticality? 2 step or 1 step
Not suitable for regular
2 step No need to pilot test
evaluations

Set
Create Re-evaluate
Evaluate Plot results criticality
questionnaire (Validation)
line

Create Set criticality

Pilot test Calibrate Evaluate
questionnaire line

Less time consuming Need to calibrate

1 step Can be made a part Process for disagreement
of process needed
Spare parts criticality analysis result
Criticality score

Spare parts items

 Is it safe to evaluate in one step?
2 step Results of criticality evaluation 2 step % results disagreed by maintenance engineers
350

300
6%
250

200

150

100

50 94%
0

Agreed Reclaimed

1 step Results of criticality evaluation 1 step % results reclaimed by maintenance engineers

1600
1400
1200 5%
1000
800
600
400
200
0
95%
-24 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15 17 19 21

Agreed Reclaimed
1 step evaluation in SP process

Stock
I need a spare Filling a Setting of stock
level
part on stock questionnaire level in IS
OK?

Reclaim and
escalation to
manager

Reclaim
OK

No spare part on
stock
How much time is needed?

16 minutes or less
in 80% of cases

Time
Criticality assessment application
LoginLogin a heslo
= Příjmení
Heslo = Jméno

Příklad:
tokac miroslav
Postupné hodnocení kritičnosti
Spare parts management starts
with good forecasting
Quantitative methods x Common sense

Quantitative Common
methods sense
Quantitative methods x Common sense

Unexplained / Random Minimize

Uncertainty Common sense Make efficient

of future
consumption

Quantitative methods Maximize

Forecasting step-by-step

Visualisation of time series

1 For better understanding of the time series

2 Calculation of forecasts using all available methods

Calculation of accuracy
3 Absolute and relative errors, evaluation on testing season

Selection of the best method

4 Best accuracy and reliability
Which method is the best for spare parts?

2% Constant model
Konstantní model
1% 1% 3%
5% Regression model
Regresní model
9%
Holt’s exp.
Holtovo smoothing
exp. vyrovnání

Jednoduché exp.
Simple exp. smoothing

??? vyrovnání
Moving average
Klouzavý průměr
Winters
Winters
79%
Forecasting není možný
Forecasting impossible
Use special methods for
intermittent demand items
 Spare parts – intermittent demand

4
ND (pieces)

QUESTION: What reorder level should be set in order to ensure required

consumption

3
availability of a spare part?
partspotřeby

2
Týdenní
Weekly spare

0
1 4 8 13 17 18 25 27 30 32
Weekly consumption history (weeks) 26
Historie týdenních spotřeb (týdny)
 Bootstrapping
Bootstrapping = random sampling from history of consumptions.
SP consumption for lead-time period is sampled from history

Sample 1: Example:
4 Consumption in SP lead time is
6 weeks
6 weeks = 5 pcs
3
spotřeby ND
consumption

2
Týdenní
Weekly SP

0
1 4 8 13 17 18 25 27 30 32
26
Weekly consumption
Historie history
týdenních (weeks)
spotřeb (týdny)
 Bootstrapping

Sample 2:
Vzorek 2: Spotřeba
4 Consumption
za
in
66weeks
týdnů ==00kspcs
3
Týdenní spotřeby
Spare part consumption ND
(pieces)

0
1 4 8 13 17 18 25 27 30 32
26
WeeklyHistorie týdenních
consumption spotřeb
history (weeks)(týdny)
 Bootstrapping

Sample 3:
Vzorek 3:
4 Consumption in
Spotřeba za
6 weeks =
6 týdnů = 12
12 pcs
ks
3
Týdenní spotřeby ND
Weekly SP consumption

0
1 4 8 13 17 18 25 27 30 32
26
WeeklyHistorie týdenních
consumption spotřeb
history (týdny)
(weeks)
 Bootstrapping

Sample 4:
Vzorek 4:
4 Consumption in
Spotřeba za
6 weeks== 2
6 týdnů 2 pcs
ks
3
spotřeby ND
consumpiton

2
Weekly SPTýdenní

0
1 4 8 13 17 18 25 27 30 32
26
WeeklyHistorie týdenních
consumption spotřeb
history (týdny)
(weeks)
 Example of 100 000 simulations of SP
consumption

Target: SP availability (Service level) = 99%

60 000 100 %
v jednotlivých intervalech

Cummulative probability of consumption

Kumulativní pravděpodobnost spotřeby
(ze simulace)
of consumption

30 000
OPTIMUM INVENTORY= 9 PCS
(from simulation)
Četnosti spotřeb
Frequencies

0
0 5 10 15
Spotřeba během
Consumption LT – intervaly
during leadtime(ks)
(pcs)
Bootstrapping application – a case study

Original inventory: 17 000 EUR

(49 pcs)

Spare part lead-time: 32 days

Intermittent demand
Recommended inventory

99.9% availability 29 pcs

10 000 EUR

Savings
7 000 EUR
Life cycle thinking:
Consider the whole life cycle of your assets
Life cycle thinking:
Consider the whole life cycle of your assets
Life cycle thinking:
Consider the whole life cycle of your assets

Bermuda
triangle of asset
management
 PROCUREMENT

COST

PROFIT?
PROFIT

RENOVATION
ASSET MAINTENANCE MAINTENANCE
LIFE CREATES VALUE!
CYCLE
Asset life cycle (Kari Komonen, EFNMS EAMC)

INVESTMENT UTILIZATION

$
$
 PROCUREMENT

COST

PROFIT?
PROFIT

RENOVATION
ASSET MAINTENANCE MAINTENANCE
LIFE CREATES VALUE!
CYCLE
 PROCUREMENT

COST

PROFIT?
PROFIT

RENOVATION
ASSET MAINTENANCE MAINTENANCE
LIFE CREATES VALUE!
CYCLE
 PROCUREMENT

COST

PROFIT?
PROFIT

RENOVATION
ASSET MAINTENANCE MAINTENANCE
LIFE CREATES VALUE!
CYCLE
Efficient spare parts management
Conclusions
Efficient spare parts management – 8 rules

Preventive maintenance Processes without problems

Segment your SP portfolio Assess the criticality

Special methods for

Good forecasting
intermittent demand items

Asset life cycle Good information system

Good information system for spare parts management

Forecast accuracy
Unexplained / Random and reliability
Minimize!

Input of technicians and

Common sense procurement Make efficient!
Criticality analysis

Forecasting
Quantitative methods Inventory levels Maximize!
Ordering
Efficient Spare Parts Management

SPARE PARTS
INVENTORY
MAINTENANCE MAINTENANCE
VOLUME VOLUME
SPARE PARTS
INVENTORY
Thank you
Tomas Hladik
Logio s.r.o.
Prague, Czech Republic
www.logio.cz
[email protected]
+420 731 151 276