Subject Area: Spare Parts Management Support
Companies that fail to provide the resources and C-suite support necessary to ensure the effective management of spare parts… will fail to deliver the full measure of shareholder value
Companies that fail to provide the resources and C-suite support necessary to ensure the effective management of spare parts… will fail to deliver the full measure of shareholder value
4. Spare Parts Management is Fundamental to Achieving Your Business Strategy
The Relationship Between Business Strategy and Spare Parts Management
There is an old saying relating to products and service that goes along the lines of: ‘Fast, good, or cheap – pick two’. While the thought behind this saying might be a bit cynical, the saying does encapsulate the basic business strategy options pursued by most companies.
The problem with most thinking on business strategy is not that the options pursued are often limited (as in, ‘pick two’). It is that business strategy is too often considered to be a ‘corporate issue’, something that doesn’t apply to operational activities and especially not to a ‘third order’ issue such as spare parts inventory management.
The reality is that the execution of a business strategy absolutely requires that the strategic goals and objectives cascade through an organization. Business strategy flows into operational strategy and this into the day-to-day operational activities and decision making. Such as those required for spare parts inventory management.
To understand this better, let’s define business strategy. In an article in the Harvard Business Review, the highly regarded author Professor Michael D. Watkins defines business strategy as:
“…a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision making. A strategy is therefore about how people throughout the organization should make decisions and allocate resources in order accomplish key objectives.”
For most businesses, the key objectives relate to customer acquisition, customer retention, and profit maximization.
Guiding Principles
To continue with the Watkins quote:
“A good strategy provides a clear roadmap, consisting of a set of guiding principles or rules, that defines the actions people in the business should take (and not take) and the things they should prioritize (and not prioritize) to achieve desired goals.”
For asset-intensive companies that rely on spare parts to support their maintenance and operational functions (to produce the goods or service they provide) these guiding principles of must include:
- Maximizing Operational Equipment Effectiveness (OEE): Sometimes this is thought of simply as ‘uptime’ (although they are not the same), but in either case maximizing this will reduce the associated production costs (such as labor), provide capacity for additional output with no additional capital expense, and, with appropriate planning, will help achieve the customer promise of in-full on-time supply.
- Eliminating unnecessary expenses: Note that I didn’t say, reducing expenses. This is because a focus on reducing expenses can lead to short-term cost reduction goals that don’t support the overall business strategy. Eliminating unnecessary expense is about ensuring that you don’t spend money on things that you don’t need – or don’t need just yet.
Why Business Strategy Must Include Spare Parts Inventory
For asset-intensive companies, implementing the actions and prioritizing resources to support these two guiding principles must include a focus on spare parts inventory management. Here’s why.
Without a robust system for spare parts management that includes stock level decision making, effective storeroom management, and spare parts maintenance, organizations will suffer a series of outcomes that will reduce their OEE and increase expenses:
- Extended downtime due to poor parts availability
- Reduced reliability caused by delayed or less effective maintenance tasks
- Reduced reliability caused by poor return to stores control and early parts failure
- Increased costs due to expediting spare parts purchases
- Increased working capital investment due to the purchase of excess stock holdings
- Wasted expense due to poor management of perishable’ spare parts
- Increased labor costs in maintenance, storeroom, and procurement
The quantitative impact of these will vary from company to company but there is little doubt that the above failures will not support goals associated with customer acquisition, customer retention, or profit maximization.
Spare Parts Inventory Management Requires C-Suite Oversight
Therefore, companies that fail to provide the resources and C-suite oversight necessary to ensure the effective spare parts management support will under-achieve against their true potential and fail to deliver the full measure of shareholder value. That’s why spare parts management is fundamental to achieving the business strategy and spare parts management is an issue that requires C-suite oversight.
For information on our spare parts management online training please visit our Pro Level page.
You might also be interested in a related article Part 5: Why Your Profit Relies on the Day-to-Day Decisions Made on Spare Parts Holdings.
Author: Phillip Slater