7 things managers, CFOs should know about spare parts
For most asset-intensive companies, spare parts are like the air we breathe. Not thought about at all when in ample supply but the No. 1 focus for survival when not available.
But many companies still view spare parts management as a low-level operational task. This results in spare parts inventory responsibilities being allocated to middle managers (and even supervisors) who themselves don’t see this task as core to their job. As a result, these companies:
- Waste millions of dollars on inventory they don’t really need — in one case I know of personally it was hundreds of millions.
- Fail to get proper leverage from their IT investments — they spend up big their ERP and then use Excel as a work around.
- Throw “good money after bad” through spending on ad-hoc problem solving, including software that is supposed to optimize their inventory but doesn’t.
- Let down customers when it’s unable to fulfill product and service promise.
All of this is avoidable when senior managers and CFOs stop treating spare parts as a third-order issue that has little business impact, and start seeing spare parts as a core function that helps deliver on business strategy and supports profit achievement.
To make this case, here is a list of seven things every senior manager and CFO should know about spare parts management.
- Most of what you have learned about inventory management does not apply to spare parts.
- You will need to hold items that will not move often (if at all).
- Excessive inventory is a symptom of other problems.
- Spare parts availability is fundamental to achieving your business strategy.
- Your profit relies on the day-to-day decisions made on spare parts holdings.
- 36 percent of your working capital spent on spare parts is wasted.
- Transforming your spare parts operations requires C-Level engagement, not just support.
If you aren’t sure about this, just ask yourself if any retail or wholesale operator would stock items they don’t want to sell. Of course not. Yet stocking items you don’t want to use is a key aspect of spare parts inventory management.
Similarly, there is an old saying in inventory management that all problems end up in inventory. For any company that has excess spare parts, the problem isn’t with the inventory, the problem is with the decision making and management associated with that inventory.
Not sure that spare parts are fundamental to achieving your strategy or profits? Just consider what happens when you don’t have the spare parts you need. Your plant stops, you have nothing to sell and you let down your customers.
One way to address this is to buy more spare parts than you need and overstock your inventory. This is a lazy and wasteful way to address a management problem.
Once senior managers understand the theory taught about supply chain does not apply to their spare parts inventory, they then realize their spare parts inventory management needs a different focus if they are to stop wasting time and money. And that focus includes C-level engagement to achieve real and lasting results. NP