This article is adapted from a recent interview with Sparrow’s CEO, Meir Veisberg, about the importance of user experience in spare parts management. Some parts of the interview have been revised or edited to improve readability in article format.
Planning inventory for production materials is a well-established process, supported by proven formulas and methodologies that help companies optimize margins and streamline operations. This process typically involves forecasting market demand and determining the quantities of raw materials and components needed for manufacturing.
In contrast, spare parts planning is more complex due to the unpredictable nature of the parts involved. While consumable parts fail at predictable rates, non-consumable parts are much more difficult to predict. This unpredictability, combined with supply chain complexities, makes spare parts planning inherently more challenging than production inventory planning.
Mastering Spare Parts Management: Strategies for Success
Q: What are the key challenges and common practices in spare parts inventory planning?
Some of the key challenges in spare parts inventory planning include dealing with unpredictability both on the “demand” side (which part will be needed) and on the “supply” side (when can you get the part) as well as cost management. Many companies still rely on manual methods such as Excel, which are not designed to handle the complexities of modern spare parts planning. The lack of reliable data further complicates the process, making it difficult to plan effectively.
Common practices include managing "bad actors," or parts that repeatedly cause problems, and performing manual interventions when regular planning fails. Material managers also face pressure to reduce inventory costs, which sometimes compromises planning accuracy.
Q: How do companies balance the risk of downtime with the cost of stocking parts?
Balancing the risk of downtime with the cost of stocking spare parts requires companies to carefully consider factors such as probability of failure, delivery reliability, and impact on production. Some companies prioritize uptime, while others may accept some downtime in exchange for lower inventory costs. This balance often reflects the company's overall culture and strategic priorities.
Q: How does spare part planning typically work, and how do companies approach planning for greenfield projects?
The initial recommendation for spare parts purchase often comes from the machine builder as part of the original deal. Operators generally review these recommendations and make their first purchases. We’ve seen companies that accept the entire recommended “spare parts list” whereas others make a part-by-part decision. Subsequent purchases are then often automated by setting thresholds (reorder points) and making automated purchase requests when inventory falls below these points. In emergencies, companies may bypass standard procurement procedures to expedite the purchase of critical parts, sometimes even sending someone personally to retrieve a part.
For greenfield projects, setting these thresholds is very challenging (due to missing historical data). Companies may default to basic formulas or rely heavily on budget constraints, leading to potential inefficiencies.
Q: What is the role of data in improving spare parts inventory planning, and how do companies manage supplier relationships?
Data plays a critical role in improving spare parts inventory planning, particularly in forecasting demand and lead times. By tracking lead times and supplier performance over time, companies can build more accurate models to better predict lead times and on-time deliveries. Tracking spare parts usage, especially as it relates to down times, criticality and equipment, will improve demand forecasting considerably.
Automated connections to suppliers are helpful in obtaining accurate lead time information. Suppliers provide current lead times that companies can use to update their planning in real time. This data also helps build more reliable models for predicting delivery times, ultimately improving the planning process.
Q: How do materials managers view new planning tools, and how do they balance statistical analysis with common sense?
In general, materials managers find new planning tools helpful because they save time and provide valuable insight. However, these tools must be used thoughtfully, balancing the flexibility they offer with the practical, experience-based judgement that material managers bring to the table.
Statistical analysis and common sense should go hand in hand in inventory planning. While statistical models provide a probabilistic approach to decision-making, it's important to balance these data-driven insights with expert judgement, especially in areas where data is lacking or uncertain.
Q: What are the risks associated with poor spare parts inventory management, and how can companies mitigate these risks?
Poor spare parts inventory management can lead to significant risks, including unplanned downtime, increased costs, and operational inefficiencies. Companies can mitigate these risks by improving data accuracy, implementing more advanced planning tools, and maintaining strong relationships with suppliers to ensure reliable lead-time information.
In addition, companies should regularly review and adjust their spare parts inventory strategies to meet changing operational needs and market conditions. This proactive approach can help minimize the risks associated with poor inventory management and ensure that parts are available when needed.