effective spare parts management - 8 rules

Effective Spare Parts Management: 8 Rules

Tomas HladikLogio s.r.o., Prague, CZwww.logio.cz

Efficient Spare Parts Management

MAINTENANCE VOLUME

SPARE PARTS INVENTORY

MAINTENANCE VOLUMESPARE PARTS INVENTORY

1) Go for preventive maintenance!

2) Eliminate process problems

3) Segment your spare parts portfolio

4) Evaluate spare parts criticality

5) Spare parts management starts with good forecasting

6) Use special methods for intermittent demand items

7) Consider the whole life cycle of your equipment

8) Implement a good information system for spare parts and maintenance inventory management

Eight rules for efficient SPM

8

Go for preventive maintenance

STANDARD PLANNED

PLANNED

MAINTENANCE

CORRECTIVE(REPAIRS)

UNPLANNED

PREDICTIVEPROACTIVE

DEFFERED CORRECTI

VE

PLANNED PROCUREMENTINVENTORY MANAGEME

NT

Go for preventive maintenance!

Prevention or correction?

Number of preventive X corrective actions

Downtimes due to corrective maintenance – repairs

Total maintenance cost

Eliminate process problems

LIFE CYCLE OF A SP IN A COMPANY

Eliminate process problems

SP NEED IDENTIFICATI

ON

There is no direct responsibility of maintenance engineers/technicians for “their” items and spare parts levels.

REQUEST FOR ORDER

RFO created by someone else, not by the technician who had identified the need.The step of creating RFO may not be necessary in the process.

RFO APPROVAL

How often are RFOs approved? Who approves?Is RFO approved by means of IS workflow or by signing a paper copy? Alternatively, are both ways needed?After RFO is approved, the issued order must be approved again.Too many approvers, complicated approval procedure and hierarchy of responsibilities.Approving on high levels of management.

Eliminate process problems

PROCUREMENT

Insufficient information available to procurement, poor spare parts identification – the buyer hardly knows what should be bought, additional communication with maintenance technician is needed.Missing or incomplete procurement specification in the IS.

RECEPTIONProblems with missing (undelivered) documentation for the received material (certificates, declarations).Only “paper-based” archiving of spare parts documentation.Problems to find documentation when needed.

WAREHOUSING

Insufficient identification of spare parts in the warehouse.Problems with finding items stored in the warehouse.Inventory count discrepancies, physical stock different from information system data.Non-real value of stock in the information system.Existence of out-of-system stocks.

Eliminate process problems

CONSUMPTION

Slow spare part issues in case of sudden need.Issued spare parts are not consumed in fact. What happens then?Consumption of external material even in case the part is on stock.

WAREHOUSE RETURNS

AND REFURBISHE

D SPARE PARTS

Refurbished parts return to warehouse while new are bought.Accounting price of refurbished items is much higher (or lower) than the non-realistic value of items on stock.Problematic or impossible returns of parts issued but not consumed.Insufficient control of parts dismantled from the maintained object (the information system has no information about these).

Spare parts’ life cycle – benchmarking

Internal best practice

PLANT 1 PLANT 2 PLANT 3 PLANT 4

1 2 30

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Comparison of inventory turnover

Segment your spare parts portfolio

Service level x locked-in capital

Inventory value

90 % 95 % 98 % 99 % 100 %?Service level / availability

ABC analysis – on hand inventory value

Value of available inventory

ABC analysis – consumed quantity

In spare parts, C and D categories typically prevail

Quantity

Spare parts inventories segmentation – consumption frequency (in quantity)

Quantity (pcs)

Spare parts inventories segmentation – consumption frequency (in value)

Value (CZK)

WHEN?

HOW MANY?

WHEN?

HOW MANY?

Strategic segmentation of spare parts

CONSIGNATION

CONSIGNATION

CONSIDER CONSIGNATION

CONSIDER CONSIGNATION

BUY

BUY

BUY

BUY

CONSIDER CONSIGNATION

CONSIGNATION

BUY BACK

BUY

TYPE

OF

FORE

CAST

CONSUMPTION FREQUENCY

VALUE

Example of buyback application

20 pieces were purchased for turnaround in 2010 for 41.2 M CZK, but these spare parts were not used during the turnaround and will be stored until the next turnaround in 2014.Buy-back in this case can save 9 M CZK (360k EUR) on storage and locked-in capital costValue of inventory 41 230 000 CZK

Percentage of storage fee per year 3%Average cost of capital 5%Time of storage 4 years From turnaround 2009 to turnaround 2013Buy-back fee 10%

Storage cost 4 947 600 CZK In four years Capital cost 8 246 000 CZK In four yearsTotal cost 13 193 600 CZKBuy-back cost 4 123 000 CZKSavings 9 070 600 Maximum suitable buy-back fee 32% Space for negotiation

Turnaround spare-parts buy back example

Between shutdowns

Evaluate spare parts criticality

𝐶𝑖𝑛𝑣=𝐶𝑢𝑛∗𝐿𝑇∗ 𝑓10 000 EUR x 10% 100 EUR / day 100 days 1 per 2 years

1 000 EUR 5 000 EUR

KEEP ON STOCK

<

Criticality calculation

INVENTORY HOLDING UNAVAILABILITY LEAD TIME FAILURE RATE

Criticality assessment phases

Preliminaryassessment

Technician

Hold on stock

Potentially critical part

Do not stock

Advanced methods to set optimal levels

Criticality assessment

Technician ConsumeSell orScrap

Optimum SP level

Effects of failure Technical places

Consequences of unavailability

Delivery timeRepairabilityPossibility of maintenance planning

Part lifespanFailure probability

Failure characteristicsFailure anticipation

Price% cost of capital

Cost of inventory

holdingFailure probability

Impacts of spare part unavailability

Leadtime andother

parameters

Evaluate spare parts criticality

No need to pilot test

How to assess criticality? 2 step or 1 step

Create questionnaire

Pilot test

Plot resultsSet

criticality line

Create questionnaire

Evaluate

Set criticality line Calibrate Evaluate

Re-evaluate(Validation)

Not suitable for regular evaluations

Less time consumingCan be made a part of process

Need to calibrateProcess for disagreement needed

1 step

2 step

Spare parts criticality analysis resultCriticality score

Spare parts items

Is it safe to evaluate in one step?

95%

5%

% results reclaimed by maintenance engineers

Agreed Reclaimed

-24 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15 17 19 210

200

400

600

800

1000

1200

1400

1600

Results of criticality evaluation 1 step

2-5 14-17

18-21

22-25

26-29

30-33

34-37

38-41

42-45

46-49

50-53

54-57

58-61

62-65

66-69

70-73

74-77

78-81

0

50

100

150

200

250

300

350

Results of criticality evaluation 2 step

94%

6%

% results disagreed by maintenance engineers

Agreed Reclaimed

2 step

1 step

1 step evaluation in SP process

I need a spare part on stock

Filling a questionnaire

Stock level OK?

Reclaim and escalation to

manager

Reclaim OK

Setting of stock level in IS

No spare part on stock

How much time is needed?

16 minutes or less in 80% of cases

Time

Criticality assessment application

Login = Příjmení Heslo = Jméno

Příklad:tokac miroslav

Login a heslo

Postupné hodnocení kritičnosti

Spare parts management starts with good forecasting

Quantitative methods x Common sense

Quantitative methods

Common sense

Quantitative methods x Common sense

Quantitative methods

Common sense

Unexplained / Random

Uncertainty of future

consumption

Maximize

Make efficient

Minimize

Forecasting step-by-step

Visualisation of time seriesFor better understanding of the time series

Calculation of accuracyAbsolute and relative errors, evaluation on testing season

Calculation of forecasts using all available methods

Selection of the best methodBest accuracy and reliability

1

3

2

4

Which method is the best for spare parts?

1% 1% 2%3% 5%

9%

79%

Konstantní model

Regresní model

Holtovo exp. vyrovnání

Jednoduché exp. vyrovnání

Klouzavý průměr

Winters

Forecasting není možný

Constant model

Regression model

Holt’s exp. smoothing

Simple exp. smoothing

Moving average

Winters

Forecasting impossible

???

Use special methods for intermittent demand items

Týde

nní s

potř

eby

ND

Historie týdenních spotřeb (týdny)4 13 17 30

0

1

2

3

4

81 18 25 2726

32

Spare parts – intermittent demand

Weekly consumption history (weeks)

Wee

kly

spar

e pa

rt c

onsu

mpti

on (p

iece

s)

QUESTION: What reorder level should be set in order to ensure required availability of a spare part?

Týde

nní s

potř

eby

ND

Historie týdenních spotřeb (týdny)4 13 17 30

0

1

2

3

4

81 18 25 2726

32

BootstrappingBootstrapping = random sampling from history of consumptions.

SP consumption for lead-time period is sampled from history

Sample 1: Consumption in6 weeks = 5 pcs

Wee

kly

SP c

onsu

mpti

on

Weekly consumption history (weeks)

Example: SP lead time is

6 weeks

Bootstrapping

Vzorek 2: Spotřeba za

6 týdnů = 0 ks

Týde

nní s

potř

eby

ND

Historie týdenních spotřeb (týdny)4 13 17 30

0

1

2

3

4

81 18 25 2726

32

Sample 2: Consumption in6 weeks = 0 pcs

Weekly consumption history (weeks)

Spar

e pa

rt c

onsu

mpti

on (p

iece

s)

Bootstrapping

Vzorek 3: Spotřeba za

6 týdnů = 12 ks

Týde

nní s

potř

eby

ND

Historie týdenních spotřeb (týdny)4 13 17 30

0

1

2

3

4

81 18 25 2726

32

Sample 3: Consumption in6 weeks = 12 pcs

Weekly consumption history (weeks)

Wee

kly

SP c

onsu

mpti

on

Bootstrapping

Vzorek 4: Spotřeba za

6 týdnů = 2 ks

Týde

nní s

potř

eby

ND

Historie týdenních spotřeb (týdny)4 13 17 30

0

1

2

3

4

81 18 25 2726

32

Sample 4: Consumption in6 weeks = 2 pcs

Weekly consumption history (weeks)

Wee

kly

SP c

onsu

mpi

ton

Četn

osti

spot

řeb

v je

dnot

livýc

h in

terv

alec

h (z

e si

mul

ace)

Spotřeba během LT – intervaly (ks)0 5 10 15

60 000

0

30 000

Kum

ulati

vní p

ravd

ěpod

obno

st s

potř

eby

100 %

Example of 100 000 simulations of SP consumption

Target: SP availability (Service level) = 99%

OPTIMUM INVENTORY= 9 PCS

Consumption during leadtime (pcs)

Cum

mul

ative

pro

babi

lity

of c

onsu

mpti

on

Freq

uenc

ies o

f con

sum

ption

(fro

m si

mul

ation

)

Bootstrapping application – a case study

99.9% availability

Original inventory: 17 000 EUR (49 pcs)

Spare part lead-time: 32 days

Recommended inventory

29 pcs10 000 EUR

Savings7 000 EUR

Intermittent demand

Life cycle thinking:Consider the whole life cycle of your assets

Life cycle thinking:Consider the whole life cycle of your assets

Bermuda triangle of asset

management

Life cycle thinking:Consider the whole life cycle of your assets

PROCUREMENTINSTALLATION

OPERA

TION

MAINTENANCE

RENOVATION

DISPOSA

L

COST

COST

COSTCOST

COST

PROFIT?PROFIT

MAINTENANCE CREATES VALUE!

ASSET LIFE CYCLE

Asset life cycle (Kari Komonen, EFNMS EAMC)

INVESTMENT UTILIZATION

$$

PROCUREMENTINSTALLATION

OPERA

TION

MAINTENANCE

RENOVATION

DISPOSA

L

COST

COST

COSTCOST

COST

PROFIT?PROFIT

MAINTENANCE CREATES VALUE!

ASSET LIFE CYCLE

PROCUREMENTINSTALLATION

OPERA

TION

MAINTENANCE

RENOVATION

DISPOSA

L

COST

COST

COSTCOST

COST

PROFIT?PROFIT

MAINTENANCE CREATES VALUE!

ASSET LIFE CYCLE

PROCUREMENTINSTALLATION

OPERA

TION

MAINTENANCE

RENOVATION

DISPOSA

L

COST

COST

COSTCOST

COST

PROFIT?

MAINTENANCE CREATES VALUE!

ASSET LIFE CYCLE

PROFIT

Efficient spare parts management Conclusions

Efficient spare parts management – 8 rules

Preventive maintenance Processes without problems

Segment your SP portfolio Assess the criticality

Good forecasting Special methods for intermittent demand items

Asset life cycle Good information system

Good information system for spare parts management

Quantitative methods

Common sense

Unexplained / Random

Maximize!

Make efficient!

Minimize!

ForecastingInventory levels

Ordering

Input of technicians and procurement

Criticality analysis

Forecast accuracy and reliability

Efficient Spare Parts Management

MAINTENANCE VOLUME

SPARE PARTS INVENTORY

MAINTENANCE VOLUMESPARE PARTS INVENTORY

Thank youTomas HladikLogio s.r.o.Prague, Czech Republicwww.logio.czhladik@logio.cz+420 731 151 276