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How Spare parts management can boost OEE

Spares Management

The ability to ensure the availability of the equipment through maintenance interventions, corrective or preventive, depends on the presence and maintenance of an adequate stock of spare parts. It is not exaggerated to consider the unavailability of spare parts as the responsible for 50% of the total down time of a system subject to failure. Of course, the stock levels of the various spare parts depend on the maintenance policies adopted and it represents itself a potential maintenance policy. This is the reason that put the spare parts management at the top priority for any company that want to improve the OEE of the production asset, to have a clear TCO of the machines and to optimize the working capital on spare parts.

What is Spare Parts Management?

Spare Parts Management is all about maintaining the relevant parts stock in the appropriate location adhering to quality, at optimal cost and available at the right time. This ensures that the efficiency and operating performance of an equipment and productivity is assured with minimum maintenance cost and downtime.

Achieving high productivity and low maintenance cost is the aim of every business. And spares management is an essential part in achieving this. Spares management plays a crucial role as do other management programs.

Adequate spares parts inventory in many a big business suffers due to the complexity in maintaining and the unnecessary cost allocation to maintain. And there are industries where spare parts management is overlooked. A common issue traced across industries is constant nagging from the maintenance department about the non-availability of the spare parts to meet their requirement and finance department always cribbing about the problem of increasing locked up capital in spare parts inventory. This amply signifies the vital importance of spare parts management in an organization.

Why Spare Parts Management?

Maintenance management results in Spare parts consumption. Shortage or stock-out of the right parts hampers the scheduled maintenance activity, resulting in serious risk of affecting operation and productivity, quality, revenue and customer satisfaction.

To avoid the occurrence of such a situation, spare parts that are stocked in advance without knowledge of the quantity and time of requirement will lead to accumulation of inventory and thereby increasing capital expenditure.

Above scenario necessitates good spare parts inventory system in place resulting in:
  • Reduced downtime
  • Reduced inventory costs
  • Increased availability of working capital
  • Improved safety

How to achieve best spares management

If proper spare parts management procedures are followed, there can be savings of 5 to 15% on spare parts inventory costs, and with a CMMS even to 30% (you can learn more reading my previous blog

Here are spare parts management best practices, for managing parts inventory more effectively.

Spare parts management cannot be planned in isolation but together with maintenance management, inventory management, storeroom management, supply chain, procurement and logistics. This adds a layer of complexity that is usually not found with other inventory types.

Spare Parts Management Processes should be incorporated as per best practices to ensure sustainability and a base for training. It is crucial to develop reports and KPI´s considering the Spare Parts Management Processes, to support the improvement and base for Spare parts maintenance budget.

Identify all spare parts – For spare parts management it is most important to identify, label, and classify all the spares related to each asset. The advantage of identification is any spares left over after a major overhaul or maintenance activity of an asset can be returned back to inventory and used for any other asset in the plant. This reduces the inventory, and locked up cost of this spare in the inventory.

There are two popular methods for inventory categorization and labelling: ABC analysis and XYZ analysis.

1. ABC analysis is an approach for classifying inventory based on the item’s consumption value, wherein the consumption value is “the total value of the item consumed over a specified time period.” ABC analysis segregates the materials into ‘A’ parts that 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, in that 80% of the consequences come from 20% of the causes.

2. XYZ analysis is used to classify inventory items according to the variability of their demand. X parts offer very little variation and can be reliably forecast, Y parts offer some variation, but their variability is still relatively predictable, and Z parts offer the greatest degree of variation and are 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.

Utilize and Manage the Bill of Materials (BOM) – Ensure to keep accurate BOM which will support the scheduled preventive maintenance (PM) that is needed on a particular equipment. This process will allow the generation of a work order with the scheduled date of the PM. BOM integrates the ordering process and placing work orders for preventive maintenance. It is important to review the BOM on a regular interval or as needed to add or remove parts from it so that an updated BOM is available for the future.

Work order process – the work order process ensures all required spare parts related to equipment can be arranged for the scheduled planned maintenance. In advance the spare parts will be arranged or delivered to the location reducing the wait time at the warehouse on the scheduled day. The work order management also updates the inventory of the spare parts used. Absence of a work order process may not account the spares used for repairs or maintenance activities and creates inaccuracies in the spares inventory management.

Optimize the warehouse – Warehouse if centralised and parts consolidated at one location tends to simplify the job of controlling and maintaining the inventory accuracy. Discipline to be enforced as regards to access to the parts warehouse will ensure inventory control responsibility. Stock location should be created to the lowest detail, typically up to bin level for tracking. All this makes the team to submit work orders and draw the parts from the inventory with ease and guarantee overall inventory accuracy.

Shelf life management – Spare parts like other materials do have a definite shelf life. Using spares post shelf life may be detrimental to safety of personal and equipment, downtime and production losses. Materials made of rubber or any elastic materials needs to be stored as per manufacturer’s instructions. Parts like V-belt tend to sag if hung from a nail and also rubber material degrades if exposed to sunlight. Motor’s shaft needed to be rotated during the storage period to avoid flat spots on bearings, which if installed with a defect will fail prematurely. Bearings storage post the shelf life will have issues of lubricants dried up and not recommended for use. Always follow the rule of first-in first-out with inventory stock to avoid the old parts stuck in inventory past their shelf life.

Today it is possible to invest in special automatic warehouses that can implement the entry and exit of spare parts in FIFO mode and thus avoid aging problems.

Inventory control system – Many industries use the ERP system for asset management. The spares management are also available bundled with Maintenance modules in SAP materials management and maintenance modules and CMMS tools. By utilizing ERP’s spares management system to manage parts inventory will ensure accuracy and ease of managing parts. .At this link a previous article of mine that could help to know more about SAP PM versus a CMMS solution

Implement cycle counting for inventory control - Cycle Counting is a periodic inventory system audit-practice in which different portions of an inventory are counted or physically checked periodically, related with inventory ABC classification. The usual class breakpoints applied are:
  • A = 10% of line items, gives 65% of turnover
  • B = 20% of line items, gives 25% of turnover
  • C = 70% of line items, gives 10% of turnover
Each portion is counted at a definite, pre-set frequency to ensure counting of each item at least once in an accounting period. Some variation about these figures is usual, but significant differences can indicate problems with stock holding policy.

Standardize Spare Parts – OEM’s (Original Equipment Manufacturer) deign and supply equipment’s for plant. In a plant there are different equipment from various OEM’s, but the parts used is not necessarily common across all OEM’s. Maintaining spare parts for different equipment in plant with various OEM supplies creates bottleneck for inventory management. Maintaining standardised parts across the plants for all equipment would be a healthy solution in spares management. Standardizing for spare parts management, usually means agreeing that a certain type/model of equipment will be used and with that the spare parts required for each installation will be the same. This can contribute to improve the MTTR (Mean Time to Repair), the negotiations with the Spare Parts Suppliers and the stocks.

An important factor, which is not considered in spares management by organisation, is the supplier spares management system. A part for a business unit will be a finished good for a supplier who has to maintain his production level in sync with the demand of the user at the same time maintaining his inventory. So however, spares management is planned, there is every chance of it to fail as it’s a chain from the initial raw material producer to the end user.

As part of best spares management is also the spares quantity management. The spares quantity requires to be replenished at the right time with the required quantity to avoid the situation of stock-out or the overstock. Given below are some standards followed across industries in maintaining the right quantity of spares at any instant.

Economical Order quantity, Safety Stock and Reorder Point formula

Economic Order Quantity (EOQ) is the optimal order quantity that an organisation should purchase for its inventory based on a set cost of production, a certain demand rate, and critical part variables. It is done to minimize inventory holding costs and order-related costs. This way of calculation is appropriate especially in 2 specific cases: the first for large multi-plant organizations that have a centralized spare parts warehouse, the second for items called consumables with high consumption and low variability.

Safety stock is the stock required to be maintained for risk mitigation against stock out arising due to shortage of supply or rise in demand. Safety stock is applicable for both raw materials and final products to ensure availability of input for production, and goods for delivery.

Safety stock are a cost to inventory until consumed, there are costs involved in holding excess inventory like renting additional warehouse space, paying salary to people handling the stock, the risk of stock expiring or becoming outdated, and much more. Excess inventory means cash is locked up so how to calculate safety stock level?

The calculation is relatively easy with reliable purchase and sales order history available.

Calculating safety stock levels requires some parameters to be regularly monitored. Maximum daily usage and average daily usage are dynamic figures, likely to change as business grows and fluctuation in demands. Thus, safety stock level changes from time to time.

Once the safety stock is arrived at, then comes the reorder point.

The reorder point ensures that the stock level does not go below the safety point. Therefore, a reorder point is typically a little higher than your safety stock level to factor in the lead time.

The formula for calculating Reorder Point builds on the Safety Stock formula with the addition of the lead time factor for a new order.

Software tools allow to set reordering points for each product or material variant that are automatically tracked. Software flags the product and material variants that have dipped below reordering point automatically. Advantages of Reorder point are:
  1. Prevent Overstocking
  2. Reduce Inventory shortage
  3. Reduce storage costs
The scope of Spare Parts Management covers the functions right from the supplier to the end user – identification and coding, criticality classification, procurement, quality inspection, stocking policies, links to work planning supplier management and internal performance. Lastly but not the least, without employee training inventory control or spares management cannot be achieved. All processes and procedures of spare part management have to be mandatorily followed.

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