Slow Moving Spares - Science not Magic
by Carl Axelson - April 2013

For many inventory operations - especially maintenance inventories - setting proper spares levels has usually been something of a mystery.  In virtually every instance, these maintenance inventories will overstock specific items that have been out of stock in the past.  Lacking any reliable methodology, the usual reaction would be to "load up" on the item so that another stock out doesn't occur.  If the item was critical, this prevents unwanted downtime in the future situations.  If the item was not critical, this approach prevents "nuisance" ordering.

If service availability is your goal, this approach of overstocking works.  However, if cost is also a consideration - especially for high cost spares - this approach is big trouble.  It simply skirts the problem of how to properly stock spares!

Consider a spare part that costs $1,000 and is only used (or issued from stock) once every two or three years.  This spare part may have had its initial spares stocking level dictated by an engineer who suggested having 20 on the shelf "just in case".  So the inventory operation spends $20,000 to stock the part.  If only 4 of these parts are "in service", the number of 20 spares is outrageous and costly.  If 40 of these parts are "in service", then the number of 20 spares may not be too far from the proper level.  Even so, more information is needed to make an intelligent "guess".

Slow Moving software tools and systems can easily make a science out of solving this entire problem.  Software tools such as these consider much more than the number in service and the cost.  A good manager should also ask:
  • How critical is the item?
  • What is the failure rate for this part?
  • How long does it take to order and receive the spare?
  • How much does it cost to carry this part in inventory?
  • Is there a high ordering cost to process the order for this part?
These are often times unknown or just as much a guess as the spares level itself.  This need not be the case.  A good estimation of each of these factors - when used in a comprehensive software tool - can provide a logical and consistent answer.  There is a difference between "precision" and "accuracy".  Just simple and honest accuracy will get the manager close to the proper number.

For example, more costly items will require more investment and cost the operation higher carrying costs.  These costs will be needless if the spares level is too high.  On the other hand, spares levels that are too low may be subject to unreliable delivery times from a vendor, unnecessary expedite costs (if critical) or even loss of operation if the part is extremely critical.  The higher the total cost of the spare part level, the higher the risk of unnecessary investment.

A comprehensive software approach will incorporate all of the above factors into a calculation that provides a schedule of spares levels according to Mean Time Between Failure (MTBF) rates.  An inventory manager can look at a range of stocking options based on these factors and determine if there is little or no cost to stock a higher level.

For example, an item may have twenty of the part in service and the part normally lasts 5 years.  This may be a critical $1,000 item.  A table of MTBF options may show that the proper spares level for this item is 4 spares on the shelf.  It may also show that coverage for a two year failure rate is also 4 spares.  In a case like this, the extra coverage has no incremental cost so the manager would have no problem stocking four spares.  If the item had a failure rate closer to eight years, the proper spares level may be 2 spares.  In this case, the incremental cost of having 4 on the shelf would cost the company extra carrying cost for spares that might never be used.  In this latter case, stocking 4 spares would clearly be a mistake.

All of the factors should be included in the calculation, such as:
  • Criticality
  • Lead time
  • Item Cost
  • Ordering Cost
  • Carrying Cost
  • Number in Use
  • Annual Usage Rates
  • Expected Failure Rate
Experience in many maintenance inventories such as Power Utilities, Oil and Gas Refineries, Paper Mills, etc., shows that when identified and used these kinds of  software tools will substantially reduce unnecessary investment.  These maintenance operations prevent the wasted overstock of a "guessed" spares level from happening in the first place.  Ongoing use during the life cycle of a spare keeps the waste out.  This approach also improves availability of spares as annual usage changes over time - whether they become "fast moving" or they become "no moving" at all.

Slow Moving software is easy to use and easy to understand.  It only requires an inventory manager to think logically and consistently.  The rewards and savings are always enormous!

The Decision Associates' MIN Management System (MMS) is an all-in-one solution for critical spares stocking levels.  For product information click MMSREF


 
New Updates!

DAI is pleased to announce the expansion of our SMS and MMS software packages!  Both are now at version 9.1 with interactive capability to work in tandem with our Description Management System (DMS).  To see more aboout DMS click 
HERE.

Min Management System is also a stand alone application, it calculates Min, Max, EOQ, and Safety Stock for fast moving items with 24 months of history based on a forecast.  The MMS product page can be found HERE .