Engineering spare parts inventory management is a big topic and managing a spare parts inventory involves engaging with lots of participants from different parts of the business. This means that there is plenty of opportunity for things to go wrong. And that may be one of the complications that makes this task more difficult than it superficially appears.
So, what do you think is the biggest problem in engineering spare parts management?
Some Universal Issues With Spare Parts Inventory
This is a question that I ask at the beginning of almost every workshop and training event. Given the range of personnel involved in spare parts inventory management it is perhaps no surprise that I get a wide range of responses. Here is a list from one recent session:
- Satellite stores
- Rotable spares management
- Lead time variability
- Stock outs
- Engaging operations
- Determining criticality
- Redundant stock
- Cannibalized spares
- Location mix up
That’s quite a list!
These responses could be sorted into a number of different categories, such as: structure (e.g. satellite stores), process (e.g. rotable spares management, logistics), and outcomes (e.g. stock outs, availability, clutter). There may even be other categories or ways to break down this list.
Despite these issues being quite universal, identifying them and grouping them doesn’t really help us identify the #1 problem with spare parts inventory management. To identify the #1 problem we need to look for a theme that is evident in each of these issues.
Common Themes: Uncertainty and Communication
One theme that is evident in almost all of these issues is uncertainty. For example, the typical reason that rotable spare parts management is an issue is that there is uncertainty about the spares usage requirements, the repair time, the reliability of the repaired item – sometimes all three! We could say something similar about lead time variability (uncertain by definition), determining criticality, stock outs, availability, redundant stock, and location mix ups.
Another possible theme is communication. One reason that many items on this list become an issue revolves around the communication (or lack of) that occurs. This is obvious with items such as engaging operations, managing logistics, and even cannibalization, and location mix ups.
The #1 Issue With Spare Parts Inventory Management
While uncertainty and communication are clear issues with spare parts inventory management, in my opinion, the #1 problem is how people deal with that uncertainty and lack of communication. Uncertainty and poor communication represent information gaps and almost universally the way that people fill those information gaps is by guessing.
Therefore, I think that the #1 problem in spare parts inventory management is guesswork!
The Merriam-Webster dictionary defines guesswork as:
The act or process of finding an answer by guessing.
Guessing is further defined as:
To form an opinion or give an answer about something when you do not know much or anything about it.
Many people reading this will be outraged. How dare I say that their work is based on giving an answer when they don’t know much about it!
In fact, it is even worse than that because the answer that is based on guesswork is cloaked in the disguise of management science. It is this disguise of management science that helps people pretend that they are not really guessing. But consider the following.
How often have you heard someone justify a position on inventory stocking levels by saying:
- It’s based on the formula, or
- It’s based on our historic data, or
- Our forecast shows…
Or something similar?
Some Common Errors
Often the statement is made as if the statement itself is a full justification. Each of these things may be true (and are based at some level on management science) but they also each involve some degree of guesswork.
- Many people use the wrong formula for determining their stock level – they are guessing that they should use (say) a Gaussian function (most typical) when maybe it should be Poisson based.
- Many people have extensive historic data on their spare parts but that data doesn’t actually reflect the real demand history – they are assuming (guessing) that it does. Their data usually reflects the movement of spares out of the storeroom, not the use of those spares on their equipment.
- By their nature, all forecasts are based on assumptions – which, in effect, makes any forecast a guess. Even worse, many people don’t even try to determine the likely basis of future demand for the item, they merely extrapolate the past into the future without necessarily questioning if that is an appropriate approach to take. This is the basis of most software packages. The use of software makes it easy to abdicate responsibility for decision making.
- The grand-daddy of all guesses is the ill-informed assumption that spare parts inventory management follows the same rules as other types of inventory management. This is the underlying assumption that is at the heart of statements, often made by accountants, that there should be a clear out of any spare part that hasn’t moved in 2 years.
All Management Problems End Up in the Warehouse
Someone once said that all management problems end up in the warehouse. By this they meant that the warehouse (or storeroom) becomes the place that provides the buffer for problems that are actually created elsewhere. These are problems with issues such as the set up of satellite stores, rotable spares management, lead time variability, stock outs, engaging operations, determining criticality, spare parts availability, managing redundant stock, logistics, cannibalizing spares, and location mix ups. These issues are ‘managed’ by stocking more inventory than would be needed if the issues were properly addressed.
When considering engineering spare parts, used to support operations through returning failed equipment to a fully operational state, it is fundamental to establishing a reliability/maintenance system that you consider the likely cause of failure and from that the appropriate course of management. Having done that it ought to be possible to at least state the basis of future usage of a part – whether that is condition monitoring, time based replacement, or random failure, or some other approach.
By identifying the basis of the forecast it can then be reviewed for reasonableness or even currency. Yet this connection is rarely made in practice and the ‘guess’ becomes the basis of the stock holding. The result is that the inventory ends up being over-stocked.
The same can be said of the engagement of operations, the involvement of procurement, and the input from finance, where an un-challenged assumption (a guess) results in overstocking.
Why is this so? Well one answer is that it is easy (or is that lazy) to not work through all of the available information and to use a guess that is disguised as know-how as the proxy for information. A better answer might be that as long as the spare parts warehouse is overstocked everyone can get away with this approach because it is easier to spend the company’s money on excessive parts holdings than it is to work on developing a more accurate or reasonable stock holding requirement.
It is usually when you tighten up on the wasted expenditure on spare parts, that the failures of the rest of the management system really come to light. By removing the excessive stock, the other systems lose their buffer for relying on guesswork.
How do I know this?
When I work with companies on reviewing and optimizing their spare parts inventory, one of two things happen. Forcing the issue so that the assumptions on which the stock holding is based are challenged and examined results in either a significant reduction in what is effectively unnecessary spare parts holdings or there is the realization within the company that their real problem is outside of the storeroom. In a recent example, through this type of examination became clear that the problems being directed at the storeroom were actually being created by the set-up of the maintenance work order system!
There is another old saying along the lines that identifying a problem is half the solution. In this case it might be that identifying (and admitting) that the basis of the estimate for the future use of a part might be really just a guess and that identification then helps lead to a better solution. So, if the basis of a stocking decision is unknown, or is really just a guess, then be clear and honest about that. Then you can get on with filling in the real data gaps and solving the real problem.
For access to all of our content, and to learn the right way to manage spare parts inventory, join our Pro Level.
Author: Phillip Slater