Spares Parts Management

Spares Parts Management

 Spare parts are the lifeblood of operational reliability and plant capacity.  No plant can operate at a high level of output without a reliable supply of functional spare parts.

Yet, spare parts are also the most overlooked contributor to reliability outcomes.  Many organizations routinely operate without properly implementing even the most fundamental aspects of spare parts management at their sites.  Often these organizations have storerooms with neat shelves and clear labels but this is not enough for highly reliable spare parts management.  Effective spare parts management is essential for making a difference in the operational reliability.

Superficially, achieving best practice spare parts inventory management looks simple because spare parts can appear to be just like any other inventory.  But in reality they are different from other inventory types and this is reason why best practice (or even good practice) can be so hard to achieve.

In reality, the spare parts management brings together the diverse disciplines of 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.

It is a paradox to note that the maintenance department always complains of the non availability of the spare parts to meet their requirement and finance department always faces the problem of increasing locked up capital in spare parts inventory. This amply signifies the vital importance of spare parts management in an organization.

Spare parts management plays an important role in achieving the desired plant availability at an optimum cost. Steel plants are normally capital intensive, mass production oriented and with sophisticated technology. The downtime for steel plant and its equipment is prohibitively expensive. The unique problems faced by the steel plant management in controlling/managing the spare parts are as follows.

  • Firstly, there is an element of uncertainty as to when a part is required and also the quantity of its requirement. This is due to the fact that the failure of a component, either due to wearing out or due to other reasons, cannot be predicted accurately.
  • Secondly, spare parts are not that easily available in the market as they are not fast moving items. The original equipment manufacturer has to supply the spares in most of the cases. New models are introduced to incorporate the design improvements and old models are phased out. Hence the spares for old models are not readily available. Particularly, this is more so in case of imported equipment as the design changes are taking place faster in the developed countries.
  • Thirdly, the number and variety of spare parts are too large making the close control more and more tedious.
  • Fourthly, there is a tendency from the stage of purchase of the equipment to the stage of the use of the spare parts, to requisition spare parts more number than that are actually required and accumulation of spares takes place.
  • Finally, the rate of consumption of some of the spare parts is very high while for some other spare parts are very low.

The solution to these problems lies in the systematic spare parts management. The objective of spare parts management is to ensure the availability of spares for maintenance and repairs of the plant and machinery as and when required at an optimum cost. Also, the spares are to be of right quality. Some of the benefits by utilizing a systematic approach to spare parts management include the following.

  • Reduced inventory costs
  • Justified basis for carrying inventory
  • Reduced probability of running out of stock
  • Addressed ‘Total Cost of Ownership’ (TCO) for supply chain management
  • Improved condition of spares
  • Linkage of spare parts levels to actual criticality of assets

Organization is to proceed systematically for establishing an effective spare parts management system. Codification of spare parts and preparation of a spare parts catalogue helps the organization in minimizing the duplication of spare parts stocking thereby reducing inventory, aids the accounting process and facilitates the computerization of spare parts control systems. There are many systematic actions are needed to ensure the effectiveness of the spare parts management. These systematic actions for managing spare parts are given below.

  • Identification of spare parts
  • Forecasting of spare parts requirement
  • Analysis of spare parts inventory
  • Formulation of selective control policies for various categories
  • Development of spare parts inventory control systems
  • Stocking policies for capital & insurance spares
  • Stocking policies for rotating spares or sub assemblies
  • Replacement policies for spare parts
  • Spare parts inspection
  • Indigenization of spares parts
  • Reconditioning of spare parts
  • Establishment of spare parts bank
  • Computer applications to spare parts management

The inventory analyses carried out on the basis of different characteristics of the spare parts, such as annual consumption value, criticality, lead time, unit cost and the frequency of use help in establishing suitable policies for selective control and directing the efforts on real problem areas. A good control system helps systemizing the ordering procedure and also achieving an optimum level of spare parts inventory.

Analysis of spares parts inventory

For the successful spare parts management, it is essential to analyze the spare parts inventory based on various characteristics such as the frequency of issues, the annual consumption value, the criticality, the lead time and the unit price. This is essential since it is not be possible to exercise the same type of control for all items of spare parts and also the same type of control may not be really effective for all the items. Commonly used analyses of the spare parts inventory are described below.

  • FSN analysis – This type of classification is based on the frequency of issues and use of the spare parts. Under this classification F stands for fast moving spare parts, S stands for slow moving spare parts and N for stands for non moving spare part items. This form of classification identifies the items frequently issued, less frequently issued for use and the items which are not issued for a very long period. This classification helps spare parts management in establishing most suitable stores layout. It also helps management of the organization where to allocate resources for purchase of spare parts. It further helps the management to take decision strategically whether the non moving spare parts inventory is continued to be stored or disposed of to release the working capital locked in these spare parts.
  • ABC analysis – This method of classification for the spare parts is on the basis of the annualconsumption value and is based on the Pareto’s principle. Under this classification system type ‘A’ are those 10 % spare parts which contributes towards 70 % of the total consumption value. Type ‘B’ are another 20 % of total spares which account for about 20 % of total consumption value and type ‘C’ are the balance 70 % of total spares which account for only 10 % of total consumption value. This type of analysis helps management of the organization where to provide maximum control and where there need to have more than one supplier for the spare parts. Fig 1 shows ABC analysi

ABC classification

Fig  1 ABC analysis

  • VED analysis – This type of classification is based on the criticality of the spare parts. Criticality of a spare part can be determined from the production downtime loss, due to spare being not available when required. Based on criticality, spare parts are conventionally classified into three classes, viz. vital (V), essential (E), and desirable (D). The VED analysis helps in focusing the attention of the management on vital items and ensuring their availability by frequent review and reporting.
  • SDE analysis – This classification is carried out based on the lead time needed to procure the spare part. As per this classification scarce (S) items are those items which require a very long lead time. Difficult (D) items needs moderate lead time and easily available (E) Items have very short delivery and often these items are available off the shelf. This classification helps in reducing the lead time and ultimately it helps in the reduction of the stock out costs in case of stock outs. This also results in streamlining the purchase and receiving systems and procedures.
  • HML analysis – This classification is based on the unit price of the spare parts. Under this classification ‘H’ items are those items whose unit cost is very high. ‘M’ items are medium cost spare parts while ‘L’ items are those spare parts whose unit value is low. This type of analysis helps in exercising control at the shop floor level i.e. at the user point. High value spare parts are to be replaced after proper authorization.  Efforts are necessary to find out the means for prolonging the life of high value spare parts through reconditioning and repair. Also, it may be worthwhile to apply the techniques of value analysis to find out a less expensive substitute for H items.

As per another classification system spare parts are classified into the following categories.

  • Capital spares – These are critical spares and are usually replaced during the capital repair of the equipment. Hence the procurement action and receipt of these spares are to be planned at the time of taking up of the equipment for the capital repair.
  • Insurance spares – An insurance spare is a spare part whose impact of not holding the spare part in stores can be massive.  Downtime costs of the equipment for such spares often far outweigh all the other costs.  Hence, by definition, it is an insurance against such failures for which the down time costs are very high. They do not become obsolete until the parent equipment remains under use. These spare parts may lie in the stores for many years. These spares need conservation activities at regular intervals. These spares block the working capital.
  • Overhaul spares – These spares are those spare parts which must be replaced every time the equipment is dissembled and re-assembled.
  • Wear and tear spares- These spare are those spare parts which have regular wear and tear in the course of operation of the equipment and need to be replaced after definite number of hours of equipment operation.
  • Consumable spares – These are regularly used items such as fasteners, seals, gaskets, and fuse etc. These are usually low value items.

Spare parts management is like every other aspect of operations management: success requires clear guidelines, differentiation of outcomes, critical evaluation, and discipline in execution.  Efficient and effective spare parts management requires more than having storerooms with neat shelves and clear labels, it requires forethought and attention to the key decision making points and consistency requires a documented approach that one can be able to audit and report on.  Only by taking such an approach can an organization can ensure the optimization of working capital requirements and that it can hold the right spare parts for meeting the operational needs.

Better co-ordination among purchase, stores, maintenance, operation, and finance departments help in achieving greater efficiency in management of spare parts inventory. The organization can avoid dumping of unnecessary spare parts in the store.