KEY TO PROFITABILITY: SPARE PART MANAGEMENT

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Spare part Management

Many companies Fail, not because of more consumption

but due to maintenance of huge spare inventory which

remains unutilized.

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Lack of clarityCompany fail often due to “trap”:

The trap has two dimensions which supplement each other

The success due to less failure incidences leads to insecurity for possible failure

Such insecure customers work as warehouse to vendors for ‘ high profit’& less frequently used spare

At the cost of customer

Customer makes payment for procured items

It is a trap and needs systematic approach to come out of this

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Spare part Management plays an important Role in achieving desired plant availability at optimum cost

Spare part Management

FACT :-1

Industry

• Capital intensive• Mass Production

Orientation • Sophisticated

Technology

Down time for such plant & machinery is prohibitive & expensive

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Spare part ManagementFACT :-2

Non availability of spare as and when required

Cost of Spare part

50 % of total Down Time

50 % of total Maintenance cost

Contributes to

More then

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Most of the Spares are supplied by Original Equipment Manufactures

Technology obsoletes faster than Life of Equipment's

New models are introduced & new designs are incorporated

Old Models phased out

Hence spares for Old Models are not available

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Number and variety of spare parts are too large

Hence close control becomes very difficult

For medium scale engineering industry

For large scale process industry

15,000 variety of spares

100,000 variety of spares

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Enhancing Life Cycle of Equipment:• Reducing forced

deterioration• Controlling natural

deterioration• Modification / improvements

&addition of new features

JH, KK , IFC & QM

PM Office TPM

• Establishment of spare parts batch• Reconditioning of spares • Spare part inspection• Replacement policies for spare parts• Stocking policy for r0table spares & sub

assemblies• Stocking policies & Insurance spares• Developing inventory control system• Formulation of selective control policies for

various categories• Inventory analysis• Forecasting spare parts requirements

TPM

Computer application for spare part management

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Approach for Spare part Management:

Clarity for “spare inventory” to be

maintained

How to reduce dependence on

original suppliers

PART A PART B

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Clarity for spare part inventory to be maintained

PART A

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Key For Successful Spare Part Management1. Systematic approach:

Lets be clear “what we actually want “a. It needs to be “cross “ functional understanding (For maintenance

“what we want” shall be different, then need of stores, purchase, accounts and inspection department

b. Once “what we want” is clear. Write down procedure , how to satisfy all requirements.

2. Inventory Analysis:

Basic for inventory analysis is clarity for different characteristics for sparesLet us “chalk down” the characteristics requirement. The characteristic broadly includes:

1. Annual consumption value2. Criticality 3. Lead line4. Unit count5. Frequency of use

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Key For Successful Spare Part Management3. Codification: Identification of spareIt is common to use 9 to 16 digit codes for spare parts.Example for 10 digit code is as under;

1 Digit 2-3-4 Digit 5-6-7 Digit 8-9-10 Digit

Imported or indigenous

Machine type, make & Model

Type of spare part

Size or serial number

With condition of all spare parts a. It is easy to minimize the duplication of spare parts.b. Easy accounting & computerization.c. Easier communication between concerned parties

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Easy communication between concerned parties

• A spare part catalogue is must for successful & meaningful implementation & usage of codification.

• A spare part catalogue should have following information:

a. Spare part codification plan.b. Spare part codec. Spare part description d. Drawing numbere. Manufacturer code & part numberf. Stock location number

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• Spare part catalogue should be made available to all concerning department for example Stores., Purchase and maintenance

• Very Important: But most neglected part

Suggestion: catalogue should be included in ISO –related controlled documents.

This shall help• Updating (only revised document shall be available.)• Obsoleting (Old document & & removing from point of usage)

Easy communication between concerned parties

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Inventory analysis & Selective control

• It is essential to analyze the spare parts inventory based on various characteristics such as the frequency of issues, the annual consumption value, criticality, the lead time & the unit price.

• This is essential as it would not be possible to exercise the same type of control for all items & may not really be effective.

Commonly used inventory analysis are :1. FSN analysis2. ABC analysis3. VED analysis4. SDE analysis5. HML analysis

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FSN AnalysisClassification based on frequency of issues/ use:

F:- Fast movingS: -Slow moving= items that are issued less than once a monthN: -Non Moving= items that are not issued/ used for more than 2 years.

This classification helps spare parts management in • establishing most suitable stores layout by locating all the fast

moving items near the dispensing window to reduce the handling efforts.

• Also, attention of the management is focused on the Non-Moving items to enable decision as to whether they are required in the future or they can be salvaged.

Even if a few of them are disposed off & the locked up capital is made available, it will make available additional working capital to the

organization. Action for disposal should be taken based on the value of each item of spare.

Experience shows that many industries which are more than 15 years old have more than 50% of the stock as non-moving spares.

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SDE AnalysisClassification based on the lead time:This classification is carried out based on the lead time required to procure the spare part.

The classification is as follows:Scarce (S):= items which are imported & those items which require more than 6 months’ lead time.Difficult (D):= items which require more than a fortnight but less than 6 months’ lead time.Easily available (E):= items which are easily available i.e. less than a fortnights’ lead time.

This classification helps in reducing the lead time required at least in case of vital items. Ultimately, this will reduce stock-out costs in case of stock-outs. A comprehensive analysis may ultimately bring down lead time for more & more number of items. This will also result in streamlining the purchase & receiving systems & procedures.

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VED AnalysisClassification based on criticality:

Spare Criticality

Non Availability

V(vital)

E(Essential

)

D(Desirable

)

Heavy Production lossHigh cost in

emergency purchaseExample: Kiln: Bearing

Moderate LossExample: Bearing for

Auxiliary Pumps

Loss not significantExample: Gasket for piping connections

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Classification based on consumption:

ABC Analysis

Method for classifying spares is on the basis of annual consumption value. As it is true for any inventory situation, Pareto’s principle can be applied to classify maintenance spare based on consumption value.

Pareto principle: the significant items in a given group normally constitute a small portion of the total items in a group & the majority of the items in the total will, in aggregate, be of minor significance.

In a specific spares control system, it is quite possible that in a single year, many spares would not have been consumed at all. In such cases, it is better to perform ABC analysis on longer consumption period data, say 3 years. Then only spares will not be left out in this classification.Policy for ‘A’ items• Minimum control• Bulk orders• More items from same supplier

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HML AnalysisClassification based on unit price:

High Cost

H(high cost)

M(Medium

cost)

L(Low cost)

Unit cost is very HighExample: Say Rs. 10,000/- &

Above

Unit cost is Medium

Example: Say Rs. 1000/- & Above

Unit cost is Low

Example: Say Rs. 100/- & Above

This analysis helps in exercising control at the shop floor level i.e.• Clarity• Proper Authorization• Issue against replacement• Exploring ways to enhancing left (Reconditioning & repair)

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Capital Spares:• These are vital spares for

critical equipment. The stock-out cost for such spares is very high & the unit cost is also very high. The number of items consumed during the life time of the equipment may be 1 or 2 or 3. Hence, the decision has to be made as to the number of items to be stored.

Consumable spares:

• These are regularly used items such as fasteners, seals, bearings, etc. these are to be stored by the materials department.

Insurance Spares:• An insurance item is a spare

part that will be used to replace a failed identical part in operating equipment whose penalty cost for downtime is very high. 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 is retired from service no matter if they do not move for many years

Overhaul spares:• Spare parts which must be

replaced every time the equipment is dissembled & re-assembled.

Some other classification based on other characteristics:

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How to reduce dependence on original

suppliers

PART B

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How to reduce dependence on original suppliersSTEP-1

Based on ABC Analysis & SDE Analysis- identify:a) 10% -20 % of spares which contribute 90 % -80 % to

inventory cost.b) Scares and difficult (imported / supplied by

manufacturers only

Important : confirm if any copyright / patent an terms of patent / copyright is associated with any identified spare.STEP-2

Availability of Drawing:I. Verify if “drawing’s” (original) are availableII. If drawings are not available get same procured

(from manufacturers). III. Incase drawings are available confirms if same are

as per spare requirement only.

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List down facilities / operations OR Equipment's Required( Including inspection and measuring / monitoring equipment's required)

STEP-4

Assess the skill of “operators in own work shops to fabricate same and based on skill arranged provide necessary training.”

STEP-5

I. Incase facilities / equipment's required not available ‘in-house’ (as per step-3) identify vendors

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Assess the skill of vendors (part experience) and equipment available (refer step-4)

STEP-7

Place trial order – Monitor - check,& then only proceed for work order

(for total process financial viability need to be checked

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INVENTORY CONTROL SYSTEMSTo ensure smooth functioning it is essential to develop a suitable inventory control by which optimization of spare part cost is achieved in a systematic way. As regards the fast moving & slow moving items are concerned, the following procedure can be followed taking into consideration various cost elements.

While managing the spare=parts inventory, basically there are four cost elements to be considered:

Cost of the spare partCost of orderingCost of storageCost of stock-out

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The cost of storage includes:1. Rent for the stores2. Depreciation on storage &

handling facilities3. Handling charges4. Salaries of stores staff& clerks5. Taxes6. Insurance7. Cost of stationery etc.

The cost of ordering includes:1. Rent for purchase department2. Depreciation for office facilities3. Salaries4. Postage & telephone expenses5. Stationery expenses6. Travel expenses7. Incoming inspection8. Entertainment & misc.

expenses

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Concept of Economic Order Quantity:

For ideal conditions there should be no stocks at all. Every item should arrive just before it is required in right quantity. This however is not practical for two reasons. While the ordering quantity is varied. It advised to analyze that at a particular ordering quantity, the total cost will be the lowest & that ordering quantity is called Economic Ordering Quantity (E. O. Q.).