Both extremes can be avoided and there is a range of additional issues which influence the correct approach to spare parts management, for example:
- If the right spare part is unavailable when needed, plant downtime increases
- If operators do not know what level of stock they should carry, money is wasted by having too much in stock
- The need to justify stocking high value ‘critical’ spare parts
- Original Equipment Manufacturers’ recommended spare part lists are often excessive
So, if you’ve been asking yourself why your costs associated with spare parts are so high and are wondering how you can rationalize them, then this blog is for you.
To Stock or Not to Stock?
High value spare parts held in stock for an extended period can lead to mounting maintenance or unnecessary storage costs. Maintenance managers should be assessing whether a spare part is required to be in stock or not, or whether a more cost-effective solution is available.
There are a few solutions and processes available to address these issues, some to consider are:
- Critical spare part optimisation:
Utilizes a risk-based approach to decide whether high value spare parts need to be stocked. Maintenance and equipment experts should identify the required spare part holding for critical spare parts. This provides the business with a quantified cost justification for spare parts, providing answers for those difficult ‘to stock or not to stock’ decisions.
- Spare parts list generation:
Having access to a library of spare parts and equipment is required to identify an accurate and realistic bill of materials for each piece of equipment.
This holistic approach considers the reliability of equipment, repair time, spare part lead time and the costs of production outages.
Other justifications for purchasing spare parts can be due to equipment obsolescence, meaning spare parts will become difficult to source in the future, or if your asset is in a location where it is difficult to get spare parts in quickly and the associated downtime losses are significant. Alternatively, the part could be classed as an insurance spare, meaning that is so vital to operations and must be held in stock.
In assessing the reasons why so much money is spent on spare parts, a common theme emerged. Maintenance teams often justified spare parts holding based on a ‘just in case basis’ to give them the comfort of having it available without consideration of any of the justifications discussed above - a perceived safety net can that can yield unnecessary costs for the business.
Therefore, assessing the criticality of the equipment and the associated risks of not having the spare parts in stock by using an auditable process to indicate whether you need these spare parts, is essential before you decide to stock or not to stock.
Hold only the necessary, part hoarding is expensive!
So, what does this mean? Well, if the spare part can easily be ordered and replaced, then you do not need to hold it as stock.
However, another problem for spare part management is identifying how many spare parts are being held at one time. The spare part may indeed be critical, but do you really need 5 of them?
Knowing exactly what equipment you have across multiple sites, and the spare parts required for maintenance facilitates optimizing the total number held. A reduced spare holding results in less warehouse space required resulting in smaller storage facilities and a reduction in storage costs.
For example, if there are 10 sites with identical equipment, centralizing your storage facilities, where practical, can significantly reduce the number of spare parts required.
Imagine you carry $5000 worth of spare parts at each site and hold 10 sites across the globe. If your consumption is only two or three times a year, across the 10 sites, maybe you only need to carry five of these in total, therefore enabling you to save $25,000 right away just by reducing stock level.
A further consideration is the shelf life of some material. Although is important to assess what stock is necessary to be kept and identify duplications, you should also assess the perishability of these items, and determine the best option for the business. You may deem this spare to be of high importance, but have you thought about the costs associated with maintaining or replacing as the quality deteriorates?
Although it is important to have spare parts readily available, storing perishable items – equipment and parts that are made up of exotic materials that will deteriorate over time - and can be expensive.
Asset and maintenance managers must therefore think beyond assessing the importance of keeping items in stock, but also the volume and costs associated to fully optimize their spare part management.
Identify your spare parts and populate their critical information
Another very basic, but effective way, to manage costs and efficiencies is to identify what your spare part requirements are. If you do not know quantities and consumption rates, you face potential delays that could lead to production downtime – whether this is for planned maintenance or unexpected breakdowns. You will not be able to execute this work on schedule, and spend time determining the required spare parts required and the information needed to order them.
For example, rather than keeping 100 in stock, you might only need to keep 20, which can then be re-ordered and replenished once consumed. By setting minimum and maximum stock levels, managers can monitor and assess spare parts at any stage and make advised judgements on when and by how much these spare parts need to be replaced.
A million-dollar saving system
After conducting a spare parts criticality study on behalf of a drilling contractor, we were able to identify over $1,000,000 worth of unnecessary stock that was being held “just in case”, there were zero justifications for holding those parts in stock, meaning that there was a huge amount of capital tied up for no reason. This provided our client with the business case to sell off the unnecessary stock and gain capital back into their business during a time when they needed it most.
By adopting these three tips, and assessing stock from multiple angles, asset managers could save upwards of tens of thousands of dollars without having any impact on jobs or projects.