Spare parts inventory management: Five Critical Steps

Spare parts inventory management shares many traits with standard inventory management, but requires an extra layer of cost consideration.

Whether a maintenance and repair organization (MRO) is internal to a larger business, or providing maintenance services to an external customer, efficient spare parts inventory management plays a critical role in reducing costs and maximizing customer service.

For this example, we will look at an internal MRO to a production facility. These five steps collect the information you need for executing effective spare parts inventory management.

Step #1: Understanding existing (or projected) consumption

Because repairs happen due to system failures, rather than as part of a production plan, many logistics professionals overlook consumption predictions.

Depending on the age of the MRO, spare parts consumption can be based on either actual historic consumption, or projected based on equipment manufacturer preventative maintenance recommendations and fleet records of other system owners.

Step #2: Calculating system failure costs

In-stock levels and the size of your on-site inventory should be directly linked to costs of system failure or “down time”. Every machine in a production facility plays a role.

Some have redundancy, like the multiple fork lifts in a warehouse, while others act as a single point of failure for the whole building, such as an automated full-building outbound sorter.

Step #3: Estimate soft cost impact of out-of-stocks

It is a picture familiar to many industry professionals: parts hoarded in toolboxes, a spare motor under a desk in the maintenance supervisor’s office, or the "secret stash" closet with thousands of dollars worth of parts.

Reducing inventory dollars on the books as part of spare parts inventory management can lead to an off-books rise in inventory costs. You are guaranteed these behaviors will start when your out-of-stock rate in your frequently requested spare parts inventory reaches 4-5%.

Step #4: Work with vendors for cost-reduction and in-stock improvement

In many instances, leveraging vendor relationships will allow you to reduce your overall inventory dollars and keep better in-stocks.

Rather than using your own time and resources to monitor spare parts usage, establish reorder points, and project parts required for preventative maintenance, the manufacturer can often provide you a starting point for your stocking levels.

In the best cases, you can find vendors willing to provide spare parts inventory management on a consignment bases: you pay only for parts consumed.

Step #5: Calculate costs (hard and soft) of expedited orders

It is sometimes impossible to maintain a spare parts inventory for every contingency. The key is to establish an expedited spare parts ordering process and understand the costs involved. This allows subordinate managers and maintenance person to make good decisions on what to expedite and what to order on standard orders.

These five steps are just the beginning to achieving optimum spare parts inventory management. From these basics, you can measure, evaluate and further stream line your spare parts inventory control processes.

Cost reduction, increased system availability, and improved moral because workers have the tools they need to do their jobs are just some of the benefits you can experience.


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