Risk management is a major element of spare-parts inventory management, but in many ways it is also one of the most poorly executed. Most companies understand risk management and go to great lengths to identify and mitigate risks across their organization, but this thinking is often limited to some types of commercial risk, reputation risk, and of course health and safety. Beyond the simplistic view that a stock-out may extend downtime, and therefore financial loss, most companies overlook the application of risk-management techniques to spare-parts management.
Many people have written books on risk management, and I don’t intend to try and summarize these. However, in the space available here, I want to address two important risk-management concepts. Get these right and you will go a long way to minimizing your spare-parts risks. The two concepts are strategic risk and operational risk.