Managing spares: How to balance cost and availability

Overstocking spare parts can be as much of a problem as understocking.
PHOTO: FOLOLIA

Of all the issues that cause the most headaches, one that stands out is how to best handle spare parts. Should maintenance hold spares in stock – and if so, how many; spend money on spares up front; or wait until they’re needed?

Here are some hard facts about spares:

• Sporadic needs are difficult to anticipate.

• Long lead times can be created by stock-outs between deliveries.

• Multiple storage locations increase the complexity of inventory management.

• Stocking decisions have a significant impact on working capital.

• So how do you find a way to balance the cost of purchasing and storing the right spares as they’re available in the right place at the right time?

Not to worry! Building a best-in-class management system can be done in four steps, according to Ned Meyer, principal of Xtivity Inc., an MRO inventory management advisory company. He suggests: establishing a baseline; identifying priorities; developing a business case for change; and planning, then implementing.

To start with, divide spares into critical and non-critical.

Next consider the cost of holding critical spares. There are two aspects: the cost of purchase and shipping of the spares, and the cost of keeping (and possibly maintaining) them on the shelf. This includes a space cost allocation plus administrative costs plus possible deterioration costs if there is loss of functionality. Mostly this is calculated as a percentage of the purchase price.

Also look at the risk of not having a spare in stock when it’s needed. Risk is the probability of failure times the cost of failure. For spares, risk is defined as the cost of not holding a spare times the probability of needing it.

The cost of purchase in an emergency buy will be higher because it leaves little or no chance for price negotiations or inclusion in a bulk buy. Expediting costs will depend on size, the travel distance and the urgency of specified delivery modes. The cost of an extended outage represents the extra time required to complete the outage, given the delay in acquiring the spare.

The cost of downtime during an extended outage is loss of revenue or loss of profit. It begs the question: what’s the probability that the remaining useful life (RUL) of a spare is intact, given that a potential failure has occurred? If the spare is past its RUL and a new one has to be ordered, will the equipment last until the new part comes in?

Predicting failure

Many manufacturers try to predict when the next failure of a spare part will occur. After all, that’s what predictive maintenance programs should be all about. Typically, the logical time frame for prediction is until the end of the current operating cycle (will it keep running until it is taken down for maintenance?). This has to be adjusted to account for the normal delivery time if it’s not in the inventory.

According to Ben Stevens, the principal of DataTrak Systems Inc., a specialist in CMMS and EAMs in Godfrey, Ont., the key elements that shape the RUL prediction are:

the current condition of the spare part RUL (the amount of degradation that the spare has suffered, compared to its functional failure level);

the history of previous degradations, particularly how quickly they occurred;

the expectation of the equipment’s failure; and

anticipated use of the equipment and spare for the balance of the current operating cycle.

If the plant moves to a double-shift or places a greater load or stress on the equipment, the probability of failure increases. RCM thinking pays attention to the practicalities of functional failure and the related inventory of spares. Stevens reminds us that most of the RCM texts touch on potential failure, but almost all ignore the immense value derived from their smart use. He says potential failure is best defined as recognizing degradation that’s within normal operating specifications but, if unchecked, will lead to a functional failure. Potential failure is the trigger point for a specific maintenance action to avoid functional failure – and it’s prudent to have the necessary spare parts in stock.

That’s fine if we can measure degradation. However, electrical and electronic spares rarely provide advanced warning of failures. Critical spares must be kept in stock for fast replacement when the in-place item fails.

In his essays about spare parts issues, Stevens says: “I have ducked the thorny question of the value of the penalty and reputation costs. This is because it is very speculative, despite typically being the largest of the cost elements. It attracts argument and debates and draws attention away from the real issue.”

He suggests appending a list of costs that are easier to find: penalties for failure to supply; extended environmental damage; and potential cost of lost materials.

There are other ways for finding money for spare parts.

“Hidden money is available in the MRO spare parts inventory of most companies. It’s not difficult to identify that inventory, but to fully take advantage of this savings potential, one must understand how it got there, how to avoid it rebuilding itself, and what the nine phases of the MRO lifecycle are,” says Meyer in a presentation he delivered at a MainTrain maintenance conference, convened by the Plant Engineering and Maintenance Association of Canada. He lists them as:

1. Initial provisioning of materials
2. Data standardization
3. Inventory optimization (which improves productivity, reduces maintenance inventory value, and provides accurate lead time information for restocking)
4. Leveraging through spend analytics
5. Making up a bill of material
6. MRO centralization and exchange (savings and efficiencies exist when parts can be redistributed throughout the company: a plant gains leverage when it has the ability to analyze item data at every location)
7. Dispositioning (identify obsolete items, items no longer associated with operating equipment)
8. MRO best practices (spending hours to locate or acquire spares is a huge waste of time)
9. Sustainability through training, learning and videos

An MRO lifecycle strategy should be self-funding. Improvement initiatives usually are, because savings are realized faster than expenses.

There is one more area of importance – the proper storage of entire motors. Motor spares are an investment in space and vital to preventing production downtime. If properly stored, spare motors are as reliable as an original.

But one must ensure motors are stored in an area with a temperature above the dew point. If motors are exposed to dew point issues, install space heaters. This will ensure bearing components and the shaft don’t rust, and prevents damage to the insulation system. Shafts and bearings must be rotated periodically, preferably quarterly, to reduce false brinelling. Place a two-colour tag on the motors, with one colour facing out for one quarter and the other for the alternate quarter. Turn the shaft, and then turn the card. Machined surfaces, including the shaft, should have a coating of masking grease or oil.

It’s also important to store spare motors in an area with low or no vibration from truck movement, heavy equipment or operating machinery. Periodic insulation resistance or MCA tests should be performed to monitor degradation.

Properly managing spares is a balancing act. Being aware of the costs and paying attention to details will deliver significant savings without losing the benefits of a well-run spares inventory.

This article includes information from DataTrak Systems Inc., Asset Management Solutions, MotorDoc LLC and MROConnection. Steve Gahbauer is an engineer, a Toronto-based business writer and a regular contributing editor. E-mail gahbauer@rogers.com.