Spare Parts Inventory Optimization: A Zero-Sum Game?

Why is it that when discussions turn to spare parts inventory optimization, maintenance and procurement are cast as natural enemies?

 
There is often an attitude of inventory optimization being a competition with winners and losers. That is, if someone ‘wins’ then someone else must lose.

In economic theory, this is known as a zero-sum game and is generally stated as: any participant’s gain or loss is balanced by the losses or gains of other participants.
 

In spare parts inventory optimization, we see this attitude when maintenance personnel take the position that any reduction in inventory is a short-sighted, money-grabbing, opportunistic, action undertaken by individuals only interested in their own short term incentives (or words to that effect!).

We also see procurement personnel who avoid engaging with maintenance personnel because they are seen as greedy, profligate spenders, with no accountability, who are only interested in making their own lives easier by spending someone else’s money.

Of course, both these characterizations are exaggerated but I don’t doubt that anyone reading this post will have seen, felt, or experienced these attitudes in their work.

But does it have to be this way?
 

In my book Smart Inventory Solutions, I discuss what I call the 5 Myths of Inventory Reduction and an examination of these shows that inventory optimization is anything but a zero-sum game.

Myth #2 is: ‘Risk Must be Re-Evaluated to Reduce Inventory’.

This myth comes about because some people think that any reduction in spare parts inventory must result in a corresponding increase in risk. However, this idea is demonstrably not correct because there are lots of ways that you can reduce inventory without impacting risk. For example, by reducing the re-order quantity but not the re-order point you can reduce inventory holdings with zero impact on risk. In this example, the safety stock (which is how risk is managed) remains unchanged. Or how about when stock goes on consignment? In this case, the stock is still available but you don’t pay for it until it is needed.

Myth #4 is: Software Will Solve the Problem.

Sometimes people are seduced by the idea that software that proposes to optimize inventory solely based on historical data can actually deliver lasting results.

This is not true.

Software can provide decision support but it can not make meaningful suggestions if your data is not accurate. And your historic record almost never reflects the actual usage of parts. (Just think about the times people take extra parts ‘just in case’ and then fail to return them to the storeroom. This leaves an inaccurate history.)

In fact. I suggest that it is the indiscriminate use of some software tools that leads companies into a spare parts ‘dead end’ where they end up with too much stock and not enough of anything they need.
 

The zero-sum view of inventory optimization comes about by looking only at the effects or outcomes of poor spare parts inventory practices, not the causes. Nothing meaningful or lasting can be achieved with this approach.

Successful spare parts inventory optimization can be achieved by ensuring that all the involved parties work together, apply their joint know-how, and use a process-based review approach that examines the causes of inventory management issues rather than the effects.

When conducted in this way, spare parts inventory can be optimized, expenditures significantly reduced, and parts availability increased. Far from being a zero-sum game, spare parts inventory optimization can be a win for everyone!