Subject Area: Spare Parts Inventory Control
It is pretty clear that a company that wants to maximise cash flow, maintain a strong balance sheet, meet customer expectations, reduce operational costs, and maximize profits, had better pay attention to its spare parts inventory management!
It is pretty clear that a company that wants to maximise cash flow, maintain a strong balance sheet, meet customer expectations, reduce operational costs, and maximize profits, had better pay attention to its spare parts inventory management!
5. Why Your Profit Relies on Your Spare Parts Inventory Control
In the previous article in this series I discussed the relationship between business strategy and spare parts management and how spare parts management is fundamental to achieving your business strategy.
It follows, therefore that the profit made by your company also relies on the day-to-day decisions made on spare parts holdings – that is, your spare parts inventory control
That isn’t meant to suggest that these decisions are the only factor at play here – of course not! But what many asset-intensive companies seem to forget is that spare parts management is a major factor in the success (or otherwise) of the maintenance function, and that maintenance is a major factor in delivering plant capacity and achieving production schedules.
Maximizing plant capacity has a major influence on the cost base. Achieving production schedules has a major impact on the perceived reliability of your company to deliver on its promises and with that, often the prices that can be charged.
In addition, purchasing spare parts uses up cash and adds to the balance sheet.
When you spell out this logic it is pretty clear that a company that wants to maximise cash flow, maintain a strong balance sheet, meet customer expectations, reduce operational costs, and maximize profits, had better pay attention to its spare parts inventory control!
Spare Parts Inventory Control Today is Like Quality and Safety in the 1980’s
If this is so clear, why then is it that companies pay so little regard to their spare parts management? In my experience this is most likely due to a combination of two things: ignorance and ‘getting away with it’.
I have been around long enough to have been in the workforce at a time when both quality systems and safety were broadly perceived as expensive and unnecessary options. Writing that statement now in 2017, it seems almost ridiculous! But that was the case.
As recently as the 1980’s, beyond some specific industries, the idea of having defined quality systems with controlled documentation was seen as being an unnecessary expense. It was usually only after a major incident that companies would take notice and seek to effect some change. This was the realization that poor quality costs money. As the quality movement grew there was an expression along the lines of ‘quality isn’t a cost, it’s an investment’.
These days you are unlikely to find a senior manager anywhere that would suggest that quality systems are an unnecessary extravagance.
Same goes with safety. Back in the 1980’s when we said to maintenance and production personnel that it was not just OK to stop production if it was unsafe to continue but that it was expected, very few believed us. Yet today, almost everywhere you go, safety is described as ‘job #1’ because companies came to realize that ‘safety’ was cheaper and more efficient than ‘risk taking’ or ‘danger’ – whatever the opposite of safety is!
Quality and Safety Became Cornerstones of Success
The ‘old school’ attitudes to both quality and safety were based on a combination of ignorance and ‘getting away with it’. Ignorance in that there was a belief that a more sophisticated approach would not produce better results. And ‘getting away with it’ in that, well, people got away with it.
The expectations of management were different then. But once it became clear that improved safety and quality systems would reduce costs then expectations changed. This is when quality and safety became cornerstones of any successful asset-intensive operation.
Today There is Still a High Degree of Ignorance With Spare Parts Management
Which brings us back to today’s expectations with spare parts inventory control. Today there is still a high degree of ignorance at almost all management levels when it comes to what effective and efficient spare parts inventory management involves.
Simplistic approaches based on the logic of generic inventory management are still common place and these are not only wrong but they are what leaves companies exposed. Just as with the quality and safety movements, so long as companies feel that they are ‘getting away with it’ they see little need to change.
It is only after a ‘major’ incident, be that an audit report or financial loss, that many companies decide that it is time to take action. Sometimes that action is ‘Band-Aid’ stuff that won’t last but, for a lucky few companies, it is at that point that they realize that the day-to-day decisions relating to spare parts management really do have an impact on financial results. These are the ones that take genuine action involving systems and training.
Spare Parts Inventory Control Becomes a Foundation for Operational Performance
Just as with the quality and safety movements of the 1980’s it is the truly pro-active managers that seek to implement effective processes and train their team in the know-how and systems required to deliver results. They no longer rely on the idea that know-how is generic. By implementing new systems and training their teams these companies can then use their spare parts inventory control as a foundation for improved operational performance and greater profits.
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 6: How 36% of Working Capital Spent on Spare Parts is Wasted.
Author: Phillip Slater