5 techniques you should NOT use for spare-parts management
These common inventory-management techniques are traps in the spare-parts world.
- Materials Resource Planning (MRP) — a production-planning technique that aims to coordinate assembly operations by ensuring that the required components are available in the right mix and at the right time in the assembly process flow. Spare parts are not used for assembly, and running a re-order report is not the same as MRP. Don’t waste your time and money learning about or trying to implement this technique if you are managing spare parts.
- Just-In-Time (JIT) — a production-management philosophy that aims to eliminate wasted time on a production line. It is not a management technique for non-production items such as spare parts. Work instead on improving spare-parts planning and coordination.
- Economic Order Quantity (EOQ) — applying an economic order quantity sounds very attractive — who wouldn’t want to purchase in the most cost-effective manner? The problem here is that there are too many variables in the actual calculation for the results to be reliable. For example, what if more than one item is on the purchase order, does that split the order cost? My advice: Apply the logic but don’t bother with the calculation.
- Service Level — a measure of the number of times that a request for an item is filled in the acceptable timeframe. It is commonly applied in FMCG and other industries with the term “Delivery In Full On Time” (DIFOT) being used. With spare parts, if you don’t have the right part available 5% of the time, your production might stop, and then nobody will thank you for achieving a 95% service level.
- ABC Analysis — an approach that divides your inventory into categories to identify which are most important and then sets agreed service levels on the availability of those items. Typically ABC analysis is based on stock turn, profit or volume. With spare parts, we know that service levels are not appropriate, stock turn only works at an aggregate level, there is no profit margin as they are used in your own plant, and volume measures ignore criticality. ABC analysis is just not appropriate.