Spare Parts Inventory

Management
Presented By:
Ankit Singh Bisen
Overview

● Parts and sub assemblies of machines will eventually require repair and
replacement.
● Increased efficiency of production plants requires minimization of machine
downtime.
● However, we don’t know which machine part will fail when?
● Therefore , availability of a wide range of spare parts is major factor for reduction in
downtime when a breakdown occurs.
● A possible solution: stocking large quantities of spare parts for immediate use
whenever needed.
● But, stocking is limited by space and cost.
Characteristics of Spare Parts

● Large in numbers and varieties

● Absence of Specifications
● Erratic consumption / No pattern
● High Prices
● Requirement of Large Space and preservation
● Difficult to dispose off
Aim

The aim of spare parts inventory management is to :-

● ensure availability of the right spare part,

● at the right place,
● at the right time,
● in the right quantity,
● at the right price,
● at the lowest total cost to the enterprise.
Identification - The right spare part!
Codification: Commonly, 9 to 16 digit codes assigned to spare parts for identification.

Example: A 10-digit code summary:

● 1st digit - Imported or Domestic

● 2nd, 3rd & 4th digits - machine type, make & model
● 5th, 6th & 7th digits - spare-part class
● 8th, 9th & 10th digits - size or serial number

Moreover, the spare parts catalogue should contain : Spare parts codification plan, Spare
part codes, Spare part description, Drawing number, Manufacturer's code and Stock
location number.
Inventory Analysis and Classification

It is essential to analyze the spare parts inventory based on various characteristics such
as the frequency of issues, the annual consumption value, the criticality, the lead
time and the unit price.

This is essential as it would not be possible to exercise the same type of control for all
items and it may not really be effective.

Inventory analysis aids selection of policies for selective control. Commonly used
inventory analysis are:

(1) FSN Analysis (2) ABC Analysis (3) VED Analysis (4) SDE Analysis (5) HML Analysis
ABC Analysis
● Classification Based on Consumption.

● Pareto principle : The significant items in a given group normally constitute a small
portion of the total items in a group and the majority of the items in the total will, in
aggregate, be of minor significance.
○ CLASS A : 10% of total spares contributing towards 70% of total consumption
value.
○ CLASS B : 20% of total spares which account for about 20% of total
consumption value.
○ CLASS C : 70% of total spares which account for only 10% of total
consumption value.
VED Analysis

● Classification Based On Criticality: Criticality of a spare part can be determined from the
production downtime loss, due to spare being not available when required.

● Based on criticality, spare parts are conventionally classified into three classes:
○ VITAL (V) : non-availability results in very high loss due to production downtime and/or a
very high cost will be involved if the part is procured on emergency basis. For example,
bearings for a kiln in a cement plant will be considered vital.
○ ESSENTIAL (E) : Non-availability results in moderate loss. For example, bearings for
motors of auxiliary pumps will be classified as essential.
○ DESIRABLE (D) : Not very significant loss due to non availability. For example, gaskets
for piping connection.
Spare Parts Inventory Control Systems
While managing the spare-parts inventory, basically there are four cost elements to be considered:-

1. Cost of the spare part (Rent, Depreciation etc)

2. Cost of ordering (Postage, Income Inspection etc)
3. Cost of storage
4. Cost of stock-out

Economic Ordering Quantity: The quantity of spare parts ordered that

will result in least cost. Given by:

Spare Parts Inventory Control Systems

Safety Stock: additional quantity of an item held in inventory in order to reduce the risk
that the item will be out of stock. Safety stock acts as a buffer in case the sales of an item
are greater than planned and/or the supplier is unable to deliver additional units at the
expected time.

Safety stock = K x √D

where K= constant (assurance level); D= Average consumption between initiation and

completion of a process.
Spare Parts Inventory Control Systems

K-values :

The K-values for ABC and VED classifications will be:

V E D

A 2 1 0.5

B 2.5 1.5 1

C 3 2 1.5

Table: K- Values
Periodic Review System

The stock level of all or a group of items are reviewed periodically. The review period and the
replenishment level are fixed and order is placed while the stock level is less than the
replenishment level.

Ordering quantity = replenishment level - stock level

Replenishment level = Safety stock + Consumption Rate x (Review period +

Lead Time)

When stock level is reviewed periodically, the safety stock also should take into consideration
the fluctuation in consumption during the review period.

Safety Stock = K x Consumption during lead time and review period

Spare Parts Inventory Control Systems

Example : The data regarding a particular type of bearing is given below :

Annual consumption = 120 Nos.

Unit price = Rs. 100

Inventory carrying cost (variable) = 0.20

Ordering Cost (variable) = Rs.30

The suggested value of K is 2. The normal lead time is 2 months. The supplier will be supplying the
bearing packs of 12 Nos. If it is decided to follow EOQ system of inventory control, what will be the
parameters for operating the system?
VED Analysis
Long-Term Perspective

• Care during project Procurement to negotiate long term supply arrangement of spares and
Specifications

• Search for reliable alternate sources .

• Preparation of drawings/specifications through Reverse Engineering to develop local sources.

• Value Engineering to develop alternate cheaper and better substitute.

• Periodical review of non-moving spares for usage/disposal

Procurement strategy: Spare parts fall into category of Bottleneck items ( low profit impact, high
supply risk). Hence we should have close relationship with suppliers and alternate Sources.
Overview