It is important to specifically categorize insurance spares in your inventory.
If you don’t categorize insurance spares you may find that you stock a lot of value in this type of spare part but cannot segment those spare parts and therefore subject them to appropriate scrutiny.
With appropriate scrutiny you can ensure that you only hold the insurance spares that you really need.
Here is our Insurance Spare Definition
An insurance spare is a spare part that you hold as a part of your spare parts inventory, that you would not typically expect to use in the normal life of the plant and equipment but if not available when needed it would result in significant losses.
Source: p239, Smart Inventory Solutions, 2nd Ed.
This definition as several important aspects:
- Held as part of your spare parts inventory: this differentiates the insurance spare from capital spares because capital spares are, by definition, not inventory because they are capitalized as plant and equipment.
- Would not expect to use in the normal life: this therefore excludes any spare parts held for ‘wear out’ components or those you expect to replace as part of normal wear and tear or as part of a preventive maintenance program.
- If not available when needed would result in significant losses: one key aspect of insurance spares is that they often have long lead times so are not available on short notice and of course if the losses are not significant there would be little sense in purchasing the spare.
Think of insurance spares as being like the insurance you may buy to cover your house or car. You don’t want to claim on the insurance but you don’t want to be without it. Insurance spares are the ultimate ‘just in case’ inventory.
You may also be interested in our Pro Level Digital Library.
Author: Phillip Slater