Playing by the (right) rules?
It is almost impossible to be successful in any activity if you don’t fully understand the rules that govern success. By rules, I mean the way different elements of the activity interact and influence each other in order to achieve your goals.
A bigger problem, however, is that without a proper understanding of the right rules, you may find playing by the wrong rules.
Of course, I am thinking about the rules for spare-parts management. But by way of analogy, let’s look at the world of sports, where there are a lot of formats that, to the untrained eye, look similar but are actually quite different.
Consider the following:
- Baseball vs. softball
- American football vs. Canadian football
- Basketball vs. netball
- Rugby league vs. rugby union.
In each case, understanding the rules of one does not make you an expert at the other.
Imagine if you want to play American football but only understand the rules of Canadian football.
Both sports look similar but there are some big differences. In Canadian football, the field is larger, the goal posts are placed differently, the end zone is deeper, there are more players on the field, the number of downs is different and there is no fair-catch rule.
The basic running, passing and tackling skills may be transferable, but if you don’t understand the rules you are not going to be an effective player.
What does this have to do with the management of spare-parts inventory?
The management of spare parts and the management of other inventories, like American and Canadian football, appear similar but are actually quite different. To be clear, I am addressing here the management of spare parts held by a company for operational and maintenance support of their equipment.
The differences stem from four irrefutable issues:
- The position of these spares is at the very pointy end of the supply chain.
- The influence of maintenance planning.
- The timeframe over which the spares are held.
- The inability to realize any reasonable return from excess or obsolete stock holdings.
The effective management of spare-parts inventory requires an understanding of a specific set of rules that are different from the standard rules of inventory management.
The example that most demonstrates this is the holding of insurance spares, or those items you hang onto just in case. You don’t want to use them because that means something has gone seriously wrong. But you want to hold them because the consequence of not holding them is too great.
Standard inventory theory doesn’t recognize this circumstance. Standard theory says if an item doesn’t move, you should stop stocking it. This is a common trap for many finance people who understand working capital but have not been educated in the management of spare-parts inventory. They typically want to clear out slow-moving items without fully appreciating the risk impact of this in the field of spare parts.
So, if you are not achieving your goals with the management of your spare-parts inventory, it may be that you are working with the wrong set of rules. NP