How to Manage Spare Parts Inventory

There are no spare parts.

Putting aside the old jokes, although it seems insignificant, high-quality spare parts inventory management is essential to the success of any manufacturer or maintenance team. After all, poor spare parts control and planning will lead to inefficient inventory storage and spare parts shortage, which will lead to unplanned downtime and unforeseen costs. Therefore, for the overall success of your business, it is most advantageous for you to invest in optimizing spare parts inventory management. Start with these skills.

Spare Parts Inventory Management Best Practices

1. Choose a Method for Labeling Critical Components

While this may seem obvious, it is still worth noting that the first step in managing the spare parts inventory is to clearly mark each component so that there is no problem. This is particularly important for critical components, i.e. spare parts reserved for machinery that is critical to business operations. There are two popular inventory classification and labeling methods: ABC analysis and XYZ analysis.

According to the International Institute of Certified Professional Accountants (AICPA), ABC analysis “is a method of classifying inventories according to the consumption value of goods”, in which the consumption value is “the total value of goods consumed over a period of time”. It can be easily inferred that the consumption value of part a is the highest, that of Part B is in the middle, and that of Part C is the lowest. ABC analysis supports the Pareto principle, that is, the 80/20 rule. 80% of the results come from 20% of the reasons. Therefore, part a has the highest percentage of use but the lowest percentage of inventory, while Part C has the lowest percentage of use but the highest percentage of inventory.

Similarly, according to AICPA, XYZ analysis is used to “classify inventory items according to the variability of demand”. The change rate of the X part is very small and can be reliably predicted; The change rate of the Y part is large, but the change rate is still relatively predictable; the Z parts have the highest rate of change and are difficult to predict. Like ABC analysis, XYZ analysis also follows the Pareto principle, in which part X accounts for the largest percentage of inventory value, but the percentage of inventory is the lowest, while part Z accounts for a small percentage of inventory value, but the percentage of inventory is the largest.

2. Balance Inventory Volume With Sawtooth Diagrams

One of the most important spare parts inventory management best practices is to maintain a balanced inventory, although this is often easier said than done. ABC and XYZ analysis of spare parts inventory classification is a start, but the sawtooth chart can help you understand how the inventory is depleted and replenished over time.

The Y-axis of the chart should represent inventory levels and the x-axis should represent time. The lines that make up the “jagged” should represent a steady decline in inventory over time. Each peak represents the maximum inventory level, and the distance between each peak represents the time between two shipments, also known as cycle time. Other marks in the zigzag chart should indicate the reorder point and delivery time.

In order for the sawtooth chart to accurately reflect the spare parts inventory quantity, the minimum and maximum inventory levels must be established for each spare part.

3. Keep Your Bill of Materials up to Date

Your bill of materials (BOM) is a winning formula for manufacturing final products that are several light years ahead of competitors. Therefore, maintaining your BOM is critical to prevent inventory inaccuracies and spare parts shortages, and to better plan preventive maintenance or services. Take the time to check your BOM regularly or semi-regularly and add or remove parts as needed.

4. Calculate Optimal Economic Order Quantity

According to Investopedia, economic order quantity (EOQ) is “the ideal order quantity that a company should purchase for its inventory given a certain production cost, a certain demand rate and other variables”, and “to minimize inventory holding costs and order related costs”.

5. Develop a Standard Work Order Process

Manufacturers sometimes store spare parts in areas that are not often used in the warehouse without marking them in the company’s inventory control system. At other times, employees forget to submit a formal work order before taking an item from inventory to repair or service the equipment. Such negligence will lead to inaccurate records of your spare parts inventory, which may lead to further problems. Therefore, it is important to implement and execute a standard work order process to obtain higher accuracy.

There are several things you can do to improve the efficiency of work order processing:

• Urge employees to follow standard procedures
• Define the consequences of not submitting a formal work order
• Introduce an automation system to reduce manual paperwork
• Simplify your process as much as possible
• Invest in high-quality employee training

6. Focus on Inventory Control During Employee Training

If your employees are not adequately trained, you cannot reasonably expect them to comply with all processes and procedures related to spare parts inventory management. This is why it is very important to conduct comprehensive and evaluable inventory management training for any employee dealing with spare parts. From online courses to seminars, there are many training programs to choose from; It is in your best interest to choose a product that covers standard processes and procedures, as well as any technology your business may use to optimize spare parts inventory management.

7. Perform Cycle Counts on a Regular Basis

One of the best ways to ensure the accuracy of warehouse inventory is to conduct cycle counts throughout the year (audits of specific product groups). Cycle counts are more convenient than total inventory counts because they do not interfere with normal business operations, which means that they can be executed more frequently.

To ensure that the cycle count is successful, the following parameters need to be set:

• Which group of spare parts inventory (a, B, or C) do you need to cycle through?
• How many SKUs do you need to cycle through?
• Who is responsible for cycle counting?
• How many people are responsible for cycle counting?
• How often do you need to cycle count inventory groups?

8. Make Spare Parts Easily Accessible

By storing spare parts in a centralized inventory, your employees can easily submit work orders and pick up parts from warehouse shelves. With a clear concept that everything is in your warehouse, you can better ensure the accuracy of the overall inventory.

9. Invest in a Quality CMMS

The computerized maintenance management system (CMMS) can more easily implement some of the spare parts inventory management best practices listed above, as well as analyze spare parts, optimize reorder points, and so on. However, the real challenge is to find a CMMS that can do all this.

Fortunately, there are always Hitachi solution parts forecasts. Part forecasting is a CMMS designed to achieve optimal inventory levels to reduce part surpluses and shortages. Spare parts forecasting extends the core field services of Hitachi solutions, providing advanced data and analysis, and providing accurate spare parts inventory and demand forecasting using enterprise resource planning, intelligent machine learning and the Internet of things.

With part prediction, you can:

• Improve spare parts inventory turnaround time
• Reduce inventory inaccuracies and shortages
• Eliminate service delays caused by out-of-stock items
• Reduce inventory costs
• Improve service satisfaction and first fixed rate

Conclusion

Often, parts warehouses and inventories do not receive the necessary attention to ensure that they operate effectively and remain accurate. Some of the reasons we see are that the management believes that the parts department can not bring revenue to the company, and they believe that the parts should be easy to manage.

This mindset, coupled with the failure to systematically manage components and to utilize best practices in warehouse inventory, can be problematic. If you focus on solving these problems, you may soon realize that it will be difficult and can be painful.

Fortunately, there are things you can do to help ensure that no problems occur and that your parts warehouse will run smoothly. An accurate parts inventory system can make the parts department more proactive in responding to the requirements of the factory. When a part is actually in the warehouse, the company does not need to speed it up and can save a lot of dollars.