Spare Parts Inventory Optimization – Inventory Management Best Practices

10 Min Read

Why Should Managers Optimize Their Spare Parts Inventory?

Companies commonly overlook spare parts inventories when it comes to effective operational control. Since spares aren’t a revenue generator, they become an afterthought and often experience unnecessary growth in total parts on hand.

Unfortunately, failing to properly manage spare parts inventory often results in unexpected P-Card purchases vs. purchase orders, lower labor efficiency, decreased MTBF (Mean Time Between Failures) and unnecessary overtime hours in the long-run. If equipment breaks down and you don’t have the spare parts needed on-hand, this can also lead to unplanned production downtime as well, including ripple effects of lower production output and reduced company revenue.

So, if you want an efficient maintenance program, then it is essential to ensure your spare parts warehouse runs smoothly and efficiently as it enables just in time spare parts inventory management. Efficient spare parts management is a foundational component in building an overall optimized maintenance program.

Systematically Identify All Parts

When operations unexpectedly go down, it is not uncommon that several items may be purchased for emergency use. Low failure rate or specialty parts that are not used often, also often fail to be recorded in the spare parts inventory control system as maintenance is focused on restoring operations and not tracking spares. 

Since these parts could be used in the future, they should be held in the storeroom and tracked in the inventory system, but far too often end up in a random cabinet or under a workbench. This makes the parts difficult or impossible to locate when they are needed again in the future, often resulting in additional emergency purchases. This increases the cost of overall maintenance and is a waste of time. When you collect and record spare parts in a proper parts inventory system, resource usage becomes more efficient, unnecessary costs are avoided and operations are restored more quickly.

Use ABC And XYZ Analyses To Identify Critical Components

The first stage of managing your spare parts inventory is to track and label all inventory. It may seem obvious, but sometimes the most obvious things are the ones that are easiest to overlook. Clear and accurate labeling will help with overall inventory control and ease the part picking process for jobs. Good tracking will help with stock requirements analysis and job planning.

The most widely-used methods for inventory parts categorization are ABC analysis and XYZ analysis.

ABC analysis classifies spare parts inventory based on each component’s consumption value. The consumption value is the total value of the component over a specified time period. “A” parts are the most expensive parts that account for the largest sum value of parts used but make up the lowest percentage of the inventory stock. “C” parts, on the other hand, make up the bulk of inventory stock but have the lowest value per unit. “B” parts sit somewhere in the middle.

XYZ analysis classifies inventory based on the variability of usage and demand. “X” parts offer little variation in use and can be reliably planned. “Y” parts offer some use variation, and “Z” parts can be used in many different job scenarios causing them to be the most difficult to forecast. As their use is varied, “Z” parts typically account for the largest percentage of inventory stock while “X” parts make up the lowest percentage but have the highest value.

Both of these methods are related to the Pareto principle, often referred to as the 80/20 rule. This rule maintains that 80% of repairs are completed using just 20% of the available spare parts. This approach enables you to determine which spare parts have the highest value and most predictable variability of their demand.

Utilize And Manage The Bill of Materials (BOM)

Having accurate BOMs for your assets is critical in ensuring you have the right spare parts in the storeroom. Some parts will be stocked and others special order, but having them in the system will allow the inventory management team to determine that in advance and ensure that accurate lead times are associated with those items in the inventory management system or CMMS. 

Accurate BOMs help to reduce unnecessary local supply runs and avoid expedited freight charges. BOMs also help the storeroom clerks pick the right parts in advance for planned jobs making the maintenance team that much more efficient.

Streamline The Work Order Process

Developing a reliable and straightforward work order process is essential. It will help to ensure all necessary information is passed along so that inventory inaccuracies are less likely to occur, which is a vital part of efficient maintenance management.

To ensure that your whole team follows the work order process, it is important to keep it simple where possible and invest in employee training. If there are confusing or complicated processes with loopholes, people will find work-arounds in order to “get the job done”. Those work-arounds always result in data loss, data inaccuracies, and lack of clear line of sight within the maintenance program.

This risk can be minimized by ensuring processes are clear and efficient, as well as holding employees accountable for following them. By incentivizing good practices, and defining the consequences for failure to follow the process, the maintenance team will become more efficient and build a better set of historical work orders with accurate data for future analysis.

Adopt Security Measures

As much as we may hate to admit it, security measures are critical to excellent inventory control. Typically well managed storerooms have: a self-service consumables area where parts are either tracked by the box or simply expensed and untracked; a main area where the core of the spares are stored; and a secure area where high value or limited access items are kept “under lock and key”. When everyone has access to all inventory, inaccuracies are bound to occur, especially when processes are not enforced and emergencies occur.

It is considered best practice to have specialized inventory experts manage the storeroom and pick parts for all shifts. If properly implemented, they more than pay for themselves. When work orders are planned and the storeroom clerk can see what’s upcoming, the can proactively pick the parts so that when the tech shows up their parts kit is ready to go. This keeps the storeroom tidy, inventory counts accurate, and makes maintenance more efficient.

In short, to properly manage inventory, you must secure it to some extent.

Part Centralization And Consolidation

Overall control and distribution are easier withing a single central storeroom. It also helps to reduce the per unit management cost allowing for more efficient spare part inventory management. When necessary, you may allow for satellite storerooms that are effectively a small closet or cabinet in order to help keep maintenance activities efficient.

In these cases, it is recommended to track these as an official storeroom. Parts should be transferred to them, and then the maintenance team must track part usage on each work order just as if the part had come from the central storeroom.

Utilize An Inventory Control System

A great way to improve inventory accuracy is to utilize an inventory control system that support technology like barcodes and RFID. Barcodes are simple, visual, and low-cost. This enables easy labeling of all shelves, bins, and even individual parts where warranted. Scanning parts in on receipt and out when issued help storeroom clerks ensure accuracy and keep operations efficient.

Most ERPs (Enterprise Resourcing Planning), EAMs (Enterprise Asset Management) and CMMSs (Computerize Maintenance Management System) have inventory management capabilities integrated in them. You can also turn to a dedicated WMS (Warehouse Management System) if that is a better fit for your organization. In any case, these will all allow you to accurately manage your inventory levels.

Give Every Part A Stock Location

Hunting for spare parts wastes time and increases frustration. When you create stock locations for your parts, make sure that you are as specific as you can be i.e. “section A, shelf 2, slot 5” rather than “on a shelf in section A”. It is best if all rows, racks, shelves and bins are labeled as everyone benefits from good spare parts inventory management practices.

This makes it easier for personnel to quickly find what they are looking for, even if they are not familiar with the part, leading to faster and more accurate fulfillment of work orders. If personnel can quickly and efficiently locate parts, they are going to feel more inclined to participate in a system that they know makes their job easier.

Perform Cycle Counts On A Regular Basis

The purpose of carrying out cycle counts is to verify inventory accuracy by doing a physical count. If the inventory is accurate, the physical count will match what you have recorded on the system.

The more regularly your perform cycle counts, the better. Ideally, you want to carry out partial cycle counts every month. Failing this, once a quarter is preferable to once a year. Every tracked item should be counted at least once in a year, with high turnover rate items checked more frequently.

A successful count requires parameters to be set. You must determine who will be responsible for the count and which parts should be counted. You should alternate inventory groups to ensure that each group is counted over the year. Those performing cycle counts should not have access to the expected quantity on hand to ensure unbiased accuracy. If you cannot afford to count and track your inventory, then that is a good indicator that you have too much on hand inventory and need to redirect some funds from excess purchases to core inventory management.

Focus On Inventory Control During Employee Training

Inventory control is something that employees are not typically trained on. If you expect your employees to carry out inventory transactions accurately, they need to be trained to do so.

Your employees will determine whether or not inventory control is carried out properly. If they are not properly trained for the best practices in inventory management, your proactive maintenance plan is at risk. If your employees are properly following the inventory management plan, reward them. If they are having trouble, show them where they are going wrong.

Quantities On Hand - Min & Max

Knowing how many of an item you may need is almost as important as knowing that you even need that item in the first place. If you have good BOMs for your assets, then you are way ahead. If not, then analyze historical work data for the parts issuance and use against particular assets.

You can then analyze the failure rate of those assets to starts to get a sense of how many parts are used at a given point in time. Combine in the PM (Preventive Maintenance) planned usage and the picture becomes more complete. As we then project those demands over time according to average failure rates and PM frequencies, we can get a clearer picture of what our minimum and maximum on-hand demands are, define reorder points and plan accordingly.

Obsolete Inventory Items

Inevitably, you will find yourself counting and recounting items that never move. Implement a process to have both maintenance and operations review these items quarterly in order to identify what assets they are spares for. Record that in the system so that if and when that final asset of the type is decommissioned, then you know that those parts can be obsoleted as well. Parts with no known usage after review should be escalated to engineering for a final check before disposition.

Reality

Most organizations carry far too much inventory on regular use items and miss critical spares due to a lack of association between the assets in service and spare parts in the storeroom. That lack of association also leads to a significant quantity of obsolete items being carried for years for no reason. 

The cross-industry average cost to carry an item for a year is 25% of the purchase price. That means every 4 years you have paid for that obsolete item all over again, and you are likely running out of space which is causing over-crowding and making good tacking even harder. Get started by shedding the dead weight and getting organized. The rest can be easily phased in for success.

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