eBook

Optimising

Spare Parts

MCP Consulting Group Limited

Blythe Valley Innovation Centre
0121 506 9032
Blythe Valley Park
Central Blvd
Solihull B90 8AJ
mcpconsultinggroup.com
 The Spares
Problem

“Research by MCP, using its AMIS (Asset Management Improvement

System) database of clients, has previously identified that parts
management is an issue. 20% of respondents were concerned about
spare parts availability and 55% concerned about maintenance costs. As
spare part expenditure can be up to 50% of the overall maintenance
budget, this is a key concern for many companies.”
MCP Consulting Group

Establishing and stocking a spare parts store is an expensive and time-

consuming activity for many companies. Effectively managing spare parts
can be a daunting task if the correct organisation and processes are not
already in place. It is imperative that every element of the business that
handles spare parts, follows solid processes in a uniform and organised
way to ensure a sustainable system that benefits all involved.

It is essential that the Supplier, the User and the Stores work in
conjunction with each other.

Supplier User Stores

In this eBook we look at Best Practices and the Top 10 issues faced by
stores and inventory managers, how they can be addressed and provide a
simple five step process to Optimise Your Spare Parts.
 The theory Inventory costs money - therefore the objective of any business is to hold
as few parts as possible. Ideally, Failure Modes, Effects and Criticality
Analysis (FMECA) data should inform maintenance in advance when an
item is going to need replacing. Maintenance informs procurement of their
requirement and, taking into account procurement processes and lead
times, the item should arrive in stores with just enough time for QA checks
before maintenance arrive to collect it.
However, the real world doesn’t quite work like this, which is why we keep
inventory to mitigate the risks (and cost) of something in this process not
following our theoretical plan.

The reality In reality, holding inventory costs money, not holding inventory also costs
money - the trick is to get the right balance, but how do you do that?

The solution In this eBook we will focus on the main issues faced by Spares Managers
and look at ways these can be addressed. We also highlight a number of
areas that can help improve the overall optimisation of spares which can
ultimately save your business money and you - unnecessary frustration!

Generally, Parts stores and inventories do not receive the attention

needed to ensure that they are managed effectively. Some of the reasons
for this are:
- Management think that Parts departments do not generate income
for the company
- They assume that parts should be easy to manage
- Failure to manage parts systematically
- Failure to utilise best practices

Effective parts inventory processes allow the parts/stores department to

be more proactive and meet the needs of the business they serve.
How many times do companies have to pay for urgent deliveries for a part
believed to be out of stock when a breakdown occurs, only to find that it is
already on-site in the warehouse but nobody was aware of its location?
Poor spare parts control and planning can lead to inefficient inventory
storage and a shortage of parts when you most need them, which causes
unplanned downtime and unforeseen costs.
Effective spare parts management helps minimise overall
business costs by reducing:
- Lost production time
- Cost of quick deliveries
- The risk of obsolescence
- The cost of duplication of parts
- The risk of overstocking
- Your technicians’ wrench time
- The maintenance department’s overall efficiency

In the following pages we look at the top ten issues faced by

spares managers, the possible causes and how you can
overcome them.

1. Identifying parts systematically

2. Managing BOMs (Bill of Materials)
3. Categorisation and classification
4. Setting a stock policy
5. Calculations
6. Stock location
7. Centralising and controlling
8. Key processes
9. Investment
10. Cycle counting
 How many of these problems do you have?
The problems Problems with management of spare parts can be summarised as follows:
- Unable to find the right part
- Critical parts not stocked
- Insufficient parts held in stock or too many parts held in stock
- Cost of spares holding is high (but much less than the cost of
equipment downtime)
- Many obsolete and redundant parts
- Incomplete parts listings by asset
- Different descriptions for the same part - duplication of parts
- Not all parts help on master data records
- Parts shown with zero value or other nominal sum
- Parts are not recorded against workorders or the correct work order
- No control over requests for additional parts to stock or treatment of
project parts
- Stores are uncontrolled with Open Access and squirrel stars are
evident
- Multiple stores with no commonality between them

The causes The underlying causes of these problems can be summarised as:
- Lack of a standard naming convention
- Absence of effective processes
- Ineffective approach to setting stock levels
- Duplicated and obsolete stock (poor housekeeping)
- Lack of consistency in approach across the departments within the
organisation
All of these issues can be solved with the right processes and the use of
standard rules and methods for managing the stores.
That is why a world-class spare parts inventory system for your
maintenance organisation is as important as inventory control for your
manufacturing goods and materials. It will make life easier, more efficient
for everyone who works with or purchases the spare parts that keep
equipment operating!
 How can you make changes to reap the benefits?
In this section we look at some tips and guidance on optimising your
spares management.
Identify 1. Systematically identify all parts
To make life easy and reduce the chances of duplication of parts, there
should be only one method of describing parts and materials.
Use a standard format which is based on noun qualifiers and attributes.

A format widely used for spare parts description is simply:

Noun, Qualifier 1, Qualifier 2, Qualifier 3, Qualifier 4…

Ensure that all parts are coded following the same method and include
manufacturer’s part numbers and manufacturer in the specification as a
minimum.
Follow the principle that there is only one way to describe each part e.g.:
BEARING KlNJ1-2Z DEEP GROOVE BALL RHP1”X2”X1/2”
not
DEEP GROOVEBEARINGKlNJ1-2Z BALL RHP1”X2”X1/2”
or
Ball Bearing deep groove INJ1-2Z RHP1”X2”X1/2”
Cleanse When all the parts have been standardised with respect to naming, then it
is possible to identify the errors and cleanse the data. The duplicates can
be identified and item stock adjusted.
 BOMs 2. Build and manage the Bill of Material (BOM)
BOMs should be developed for each asset. These are the list of parts and
quantities required for each asset or equipment. They support searching
for parts by asset and also make ordering parts much easier.
When BOMs are in place, the maintainer has a direct link to the list of
parts for that equipment. When these are not in place, then the maintainer
has to search the complete spares database which is time consuming.
Keep your BOMs up to date to reduce the risk of creating inaccuracies for
the future because a part was not added, changed or removed from a
BOM.

Categorise 3. Categorise and classify all parts

It is not necessary to stock all the parts and materials identified in the
BOMs. But how do you know which parts to actually stock?
The starting point is to link the parts to the equipment criticality or relative
importance to the business. The equipment criticality will then identify and
rank the assets in order of importance.
It therefore follows that the most critical assets should be the focus for
stocking decisions. However, a resolution is still required to decide which
parts need to be considered for stocking.
Parts for an asset should be classified as:
- Insurance (I) parts i.e. those parts that are on a long lead time and
would cause major disruption if they were not available and therefore
held in stock. There will be a small number of such items.
- Repairable/rotatable items (R) parts or components that can be
repaired.
- Vital (V) parts that are very important to the equipment operation.
- Essential (E) parts that are required for effective operation of the
asset.
- Normal (N) or regular usage items e.g. bearings or seals.
- Consumable (C) items, high volume disposable parts e.g. fuses,
washers, nuts and bolts.
ABC XYZ Two other popular methods for inventory categorisation and labelling is the
ABC analysis and XYZ analysis.

ABC analysis
This “is an approach for classifying inventory based on the items’
consumption value,” where the consumption value is “the total value of the
item consumed over a specified time period.”
So the A category parts have the highest consumption value, B parts have
an intermediate consumption value and C parts have the lowest
consumption value.
ABC analysis subscribes to the Pareto principle, or the 80/20 rule, that
states 80% of the consequences come from 20% of the causes.
As a result, A parts will account for the largest percentage of parts used
but the lowest percentage of inventory stock, while C parts account for the
smallest percentage of parts used but the highest percentage of inventory
stock.

XYZ analysis
This is used “to classify inventory items according to the variability of their
demand.” X parts show very little variation and can be reliably forecast, Y
parts show some variation, their variability is still relatively predictable, and
Z parts offer the largest variation and are therefore difficult to forecast.
Like ABC analysis, XYZ analysis also subscribes to the Pareto principle,
where X parts account for the largest percentage of inventory value, but
the lowest percentage of inventory stock, while Z parts make up the
minority of inventory value but the largest percentage of inventory stock.

The issues
If these methods aren’t followed correctly it can result in a lack of focus on
those items offering greatest cost reduction, therefore cost reduction
opportunities are overlooked.
The main issues with the ABC classification:
- Not populated at all
- Populated incorrectly, such as for criticality, stock checking frequency
Main issues with the XYZ classification:
- Most inventory management systems do not have a data field for this
value, therefore, it is rarely used. This analysis is best carried out
externally to the inventory management system.
 Stock policy 4. Control what parts get stocked, set a stock policy
Maintenance managers and plant engineers have overall responsibility to
keep the plant machines operating. They should decide which parts get
stocked and which do not. Everyone needs to work with these individuals
to discuss additions, reductions or other changes to any aspect of the
stores inventory.

Once there is an understanding of the relative importance of each of the

items and their classification, the next step is to set the stock policy; this
can include:
- Hold insurance parts in stock - whatever the cost
- Use an item and reorder another as a replacement
- Set reorder points for vital, essential and normal usage items;
determine the reorder points and economic order quantities with
triggers to signal when a reorder is necessary
- Outsource management of consumables to a third-party specialist
vendor
- Adopt a Vendor Managed Inventory (VMI) approach where the
vendee holds and owns the stock, and the user pays when it is used

Dynamic inventory 5. Calculate optimal reorder points and Economic Order

Quantity (EOQ)
Nowadays, many maintenance software packages have the functionality
to calculate both reorder points and order quantities. This is a dynamic
inventory model where the average consumption is calculated at each
point of consumption and lead times are calculated at every point of
receipt. For example, the computer software automatically calculates the
reorder level and if the stock on hand is equivalent or less than the reorder
level, a replenishment action is automatically generated.
Reorder points Make use of these tools if they are available or you can use this simple
formula to calculate the Re-Order Point (ROP) :

ROP = AMI ∗ L + K ∗ AMI ∗ L

AMI = Average monthly issues

L = Lead-time in months
K = The service factor related to the criticality of the item (it is
99% for vital items, 95% for essential items and 90% for
normal support items). This is converted to the service factor
2.33, 1.65 and 1.29 respectively as provided by normal
distribution tables.

EOQ The ROP determines when you need to order an item it does not inform
you how many you need to order that’s the purpose of the Economic
Order Quantity (EOQ).
The EOQ is the ideal order quantity a company should use to purchase its
inventory based on cost of purchase, demand rate and cost of holding
stock. You can use EOQ to determine the quantity of spare parts you need
to order, based on annual demand by using the following formula:

2D ∗ TC
EOQ =
HC

D = Demand or consumption forecast

TC = Transaction costs
HC = Holding costs

Lead times Having a thorough understanding of spare part lead times is critical to
building a successful stock program. Part lead time is particularly
important when determining which parts to stock. If downtime is not critical
for your company, parts that can be acquired quickly and easily can be left
out of a stocking plan. However, if lost production time means a significant
financial loss for your operation, even a day or two without a part can be
too long. Many parts with long lead times are made to order and do not
carry expediting options. Therefore, it is best to keep parts with long lead
times on hand.
Tip: Off-brand components that can be obtained more quickly may present
themselves as a viable substitute during a crisis. However, you should
keep in mind that for certain equipment, these substitute/alternative parts
could cause further damage to your equipment or system.
 Location 6. Make sure every part has a stock location
It can be difficult for employees to locate a part if the location identifier is a
shelf where many other parts are in a shared location.
We recommend:
- Creating and identifying locations for parts from the lowest detail to
the highest
- Labelling all bins and shelf locations for each type of part needed
- Attaching QR or barcodes to parts or their locations to be scanned in
By implementing the above recommendations, you will be able to have
better control over your parts inventory and provide faster and more
accurate fulfilment of work orders and other parts requests.

Centralise 7. Centralise and control spare parts

Make it easy for your employees to submit work orders and pull parts from
warehouse shelves by storing spare parts within a centralised inventory.
With a clear idea of where everything is located within your warehouse,
you can better guarantee overall inventory accuracy.
Where possible, centralise and consolidate parts held in official and
unofficial satellite stores into your main parts warehouse. Having all your
parts centralised and consolidated can make security easier, give you
better control and helps maintain stock accuracy.
In large facilities frequently used items can be stored in controlled areas
close to the equipment they are used on, which saves technicians’ time.
Processes 8. Establish the key processes for inventory and stores
management
Maintaining a world-class inventory system requires that everyone
understands the processes and procedures that are in use. There are
several processes that are required to be in place to support effective
inventory management.
These basic processes and Standard Operating Procedures (SOPs) are:
- Addition of new items to stock
- Naming convention for parts
- Setting stock policy and stock levels for new items
- Issue and return of items from store
- Review of stock levels and items issued
- Treatment of repairable items
- Stock locations
- Establishing Bills of Materials
- Storage of parts and materials
- Monitoring shelf life of items
- Cycle count and stock checking
Simplify your processes and introduce automated systems to reduce
manual paperwork, wherever possible. For each of the above, there
should be a process map identifying the various stages and the individual
roles at each stage.
These processes, once agreed, should be trained to all relevant staff and
enforced through regular auditing and monitoring, using key performance
indicators.
Adopt the rule - no work order, no part can be issued!

Have a process where non-

emergency work orders are placed
in advance. Work orders requested
in advance can be pulled and
staged for pickup or delivered to
the requesting department. This will
reduce the maintenance
department’s wait time at the parts
warehouse for their work order to
be fulfilled.
Invest 9. Invest in a quality CMMS and technology
A Computerised Maintenance Management System (CMMS) can make it
easier to implement some of the spare parts inventory management best
practices listed above, as well as supporting analysis of spare parts
movements.
Parts inventory modules help organisations efficiently manage, restock,
locate, and assign a list of parts to work orders and assets. By effectively
managing inventory, organisations can increase productivity, decrease
downtime and waiting on necessary parts, reduce spending on parts, and
ensure parts availability when needed.
By utilising your CMMS materials management functionality and not
spreadsheets to manage your parts inventory will ensure accuracy and
ease of managing your parts store.
With the materials management you can:
- Improve spare parts inventory turn time
- Reduce inventory inaccuracies and shortages
- Eliminate service delays due to out of stock items
- Reduce inventory costs
- Increase service satisfaction and first-time fix rate
Using barcodes and scanning functionality in conjunction with the CMMS
system will enhance the efficiency of the processes and improve inventory
accuracy.
By using automated vending cabinets to issue and track stock levels also
ensures increased control and security to minimise stock losses.

IIoT In the age of the Industrial Internet of Things (IIoT), consider the move to
predictive and proactive maintenance. Make use of technology to predict
failures well before they occur, thus reducing the need to hold as much
stock.
Predictive maintenance and condition-based maintenance can drive
efficiencies in maintenance and reduce unexpected downtime.
Modern sensor solutions will help identify potential failures and lengthen
the time to plan for their replacement.
Cycle counting 10. Use cycle counting
Conduct cycle counts throughout the year, not just one time each year.
Cycle counts are more convenient because they do not interfere with
normal day to day operations.
In order to ensure a successful cycle count, set the following parameters:
- Decide which parts classes are included in cycle counts e.g. high
value, high usage or critical parts (refer to ABC or XYZ analysis and
parts category)
- Determine how many items to count each week or month
- Define the frequency of the counts for each category

Having looked at some of the issues faced by spares managers and ways
they can reassess and reorganise, the following is a simplified 5 step
process to help implement changes to your spare parts management.

Step 1 Assess the current situation and targets. Establish standards

and a naming convention method.

Step 2 Cleanse existing data, identify and eliminate duplicate, obsolete

and redundant parts.

Step 3 Re-organise remaining parts by categorising according to their

criticality.

Step 4 Define stock policies appropriate to the importance of the parts.

Set the correct optimised stock holding and define the inventory
management processes and procedures.

Step 5 Control and check stock levels. Manage and review spare parts
processes.
Adopting an open store policy is rarely effective. It does not encourage the
discipline for the recording of parts used which is essential for effective
stock control, optimising costs and supporting an accurate work history
and life cycle cost approach. Allowing everyone to have access can
quickly make parts inventories inaccurate.
Limiting access to the parts store, by adopting a policy that spares
inventories are accessible only by the departments’ employees and
nominated technicians or security staff is far more effective.
Store keepers are critical to inventory accuracy
The only way to maintain inventory accuracy is to lock the storerooms.
Assign store keepers with the sole responsibility to bring parts into the
storeroom (receiving function). Store keepers will place the received items
in their designated storage locations. They will retrieve and issue parts
from the storeroom to the technicians, as required.
Store keepers will perform all computer transactions and all cycle counting
to ensure inventory accuracy. They alone have the responsibility and
accountability to maintain inventory accuracy. If store keepers are not held
accountable, there will be no accuracy.
Training
Training staff in the use of the processes and procedures is essential if
you want to maintain a cost effective stores and inventory management
system.
You may want to consider internal or external spares training for your
stores managers or supervisors, such as MCP’s Spares and Materials
Management Course which is ideal for anyone with responsibility for
engineering materials and spare parts.
 Don’t know
Then why don’t you let us review your
parts data, free of charge, at the point of
where to
analysis? On completion of the review,
we can provide you with a summary of start?
the possible savings and discuss your
options with regard to how you can
optimise your Spare Parts and Inventory Click here to take the
Management. first step

The MCP Group of Companies was originally established in 1987

providing physical asset management and maintenance
consulting and training services to clients on a worldwide basis.
We are focused on supporting our clients’ future business objectives and
proud that our history has given us the firm foundations upon which to
grow and keep pace with industry changes.
Our consultants have the skills to help you each step of the way. They are
Institute of Asset Management accredited and can support you in
developing better awareness of your strengths and weaknesses, help to
create an improvement plan, build capacity and deliver positive business
change.

Spares Management Services We Provide

We provide a range of services to support clients wishing to reduce stock
holding and increase labour utilisation, reduce equipment down time and
generate cash from disposing of excess or redundant stock.
Our services include:
‒ Inventory optimisation using our unique MRO (Maintenance, Repair
and Operations) Inventory Optimising Software
‒ Sale of redundant plant, equipment and spare parts through our
APEX process
‒ Decommissioning of plant and subsequent disposal
‒ Audits of parts and inventory master data
‒ AMIS spare parts assessment
‒ Master data cleansing to best practice
‒ BOM Data Reviews and BOM development
‒ Advice and guidance on establishing best practices for inventory and
stores management
Blythe Valley Innovation Centre
Blythe Valley Park
Central Blvd
Solihull B90 8AJ

0121 506 9032

mcpconsultinggroup.com