Best Practices to Adopt for Spare Parts Inventory Management
October 17, 2023
Management teams don’t often consider spare parts inventory management to be a priority when looking for efficient ways to manage their facilities. This often results in highly inefficient maintenance operations, which can lead to losses worth $300 million in a single year.
Have you been taking spare parts inventory management for granted, thinking it wouldn’t make a difference to your overall productivity? You might want to start paying attention.
The first thing you should work on is a system for spare parts inventory. In this guide, we help guide you through the optimal processes and how to adopt them to improve your spare parts inventory management.
Let’s begin with some basics.
What Is Spare Parts Inventory Management?
Spare parts inventory management involves the management of spare parts used for repair or replacement. It involves spark plugs, batteries, electric motors, light bulbs, engine and motor belts, printer cartridges, filters, oil and lubrication, and other similar items.
Spare parts inventory management is a critical aspect of the overall maintenance, repair, and operations (MRO) activities needed for the upkeep of a facility or plant.
The Aim and Importance of Managing Spare Parts Inventory
While the specifics of spare parts inventory management will undoubtedly be different for each facility or plant, it lends similar benefits to all of them.
Here are some essential reasons why you should consider improving your management system:
With a well-managed spare parts inventory, your employees will always have easy access to everything they need for carrying out timely repairs of failed equipment. This ensures there is little to no downtime for operations.
Because all the needed spare parts are on hand, you can easily replace faulty elements and avoid the consequences of haphazard or patchwork maintenance.
If you don’t have a spare part when you need it, you may be pushed to get it delivered immediately. This will often require a rush fee, which is an expense you should do away with.
The lack of proper inventory can also lead to stalled production along with wasted employee hours—even more expenses for your facility.
When you don’t have to spend on unexpected orders for urgent spare parts, you have more capital to invest in other aspects of the business.
Improved Customer Service
While you wait for spare parts to arrive, you will lose money because of equipment downtime. You also risk losing customers if you cannot deliver goods within the set timeframe.
Spare parts inventory management ensures your happy customers because your operations run smoothly and all of your orders are delivered on time.
Better Metric Assessments
By reducing downtime and expenses, spare parts inventory management directly affects your key performance indicators (KPIs).
One such metric that demonstrates optimal operations is wrench time. It measures the number of hours your technician, mechanic or maintenance worker spends performing hands-on work or using tools (the “wrench” refers to tools used in manual work). In other words, wrench time is the time spent directly on maintenance or repair tasks, as opposed to time spent on non-productive activities like paperwork, waiting or breaks.
You can also measure the efficiency of your spare parts inventory management using metrics such as Inventory Record Accuracy (IRA), stock-outs, turnover rate by part, etc. A physical inventory count or a cycle count will give you a measure of the inventory record accuracy. You can calculate Accuracy Rate or Discrepancy Rate to track accuracy over a period of time, in order to quantify progress.
Spare Parts Inventory Management: Best Practices and Strategies
Whether you’re putting together a spare parts inventory management plan for the first time or improving on an existing one, these strategies and best practices will help guide you:
1. Prioritize and Label Components
Labeling your spare parts makes it much easier for your team to quickly identify and locate items when needed. Use consistent part numbering and naming conventions when labeling to prevent confusion and streamline search and retrieval.
It is also important to classify and categorize all of your spare parts inventory to know what things to prioritize when reordering.
Consider what spare parts you must always have in your inventory and classify them as “stock” components. The components you don’t use too often can be qualified as “non-stock.” Alternatively, you can implement an ABC categorization system to classify spare parts based on their value and importance. “A” items are critical, “B” items are moderately important, and “C” items are less critical.
There are many factors to consider when determining which spare parts to prioritize. Here are two of the most important ones:
If you need to prioritize components by downtime risk, you must calculate the risk of downtime related to each piece of equipment. Then, you can prioritize parts for equipment that can result in more significant losses if they shut down for a few hours or one day.
Additionally, this will help you optimize your expenditures when you don’t have the budget to maintain stocks for your entire inventory.
You can also use these KPIs to calculate the downtime risk for different equipment:
If you decide to prioritize based on lead times, it’s essential to calculate the same for each spare part. Set reorder points first for those with the most extended lead times, especially if they are required for critical assets.
You can also categorize components based on how often they are used, storage costs, potential costs, etc.
Inventory management systems make the task of classifying and categorizing spare parts a lot easier and more convenient. These systems minimize errors and can quickly and accurately calculate lead times and downtime risk for certain components.
You can also implement barcode scanning or QR codes to automate the process of tagging, tracking, and organizing all spare parts.
Proactive or preventive maintenance strategies reduce the scale of your repair work and expenses for the same. It is centered on planning expenditures, which directly reduces the risk of unexpected costs.
2. Set Reorder Points (ROP)
Reorder points determine when a new order for a spare part must be made. Instead of waiting for stock levels to reach zero, you order items when the inventory levels reach the reorder point.
The reorder point can be calculated using the following formula:
ROP = (Average daily sales Days of average lead time) + Safety Stock
Maintain detailed maintenance records to track spare parts usage and the history of each part. This can help optimize inventory levels even more when you identify demand patterns.
3. Utilize and Update Bill of Materials (BOM)
The BOM outlines the materials needed to produce an item or component. It is an essential reference for workers when conducting repairs or maintenance.
Keeping your BOM up-to-date ensures you’re always prepared if equipment failure occurs. In addition, BOM ensures a streamlined repair process.
4. Outline Standard Operating Procedures (SOP)
SOPs indicate the step-by-step process of performing any task. For spare parts inventory management, it can outline the procedures for carrying out regular maintenance or repair tasks. This ensures every employee follows the same steps, therefore preventing errors or inconsistencies.
Additionally, SOPs promote accountability and allow you to foresee the consequences of failure to follow them.
5. Manage Lifecycle
A proactive lifecycle management strategy for spare parts goes a long way in keeping your operations going smoothly. Effective lifecycle management include measures to:
- Review and update the spare parts list regularly
- Identify and remove obsolete or rarely used items
- Dispose of obsolete parts responsibly and compliantly
- Follow proper procedures and techniques
- And more.
6. Store Spare Parts in a Centralized Inventory
Putting all your spare parts in a centralized location and organizing them in shelving, bins and storage systems makes maintenance and physical security easier.
Firstly, it streamlines the cycle counting process. Secondly, it helps you ensure better inventory accuracy. And finally, your employees will be able to find and access inventory quickly and with very little effort.
7. Implement an Inventory Management System
Inventory management systems are valuable tools, primarily due to their automation features. They can simplify data entry, record keeping, asset tracking, ordering, receipts management, and other complex tasks that can impact your inventory significantly.
Moreover, solutions like Nest Egg can also boost real-time visibility of inventory levels so you can make more data-driven decisions for your spare parts inventory system. Once in place, you can implement a First-In-First-Out (FIFO) method to ensure older spare parts are used first, reducing the risk of obsolescence.
8. Implement Security Measures
It is vital to adopt robust security measures to ensure your spare parts inventory is where you want it to be and in the best condition.
Some strategies to ensure the security of spare parts inventory include:
- Restricting inventory access to certain departments
- Utilizing badge access for all entry and exit points
- Tracking assets as they move around the facility (using QR codes and barcodes)
- Installing security camera systems
- Incorporating vertical lift modules for spare parts inventory
9. Train Your Employees in Proper Inventory Control
Make sure you provide complete, proper training to all employees. Strict guidelines on inventory control are critical before they even start working.
Teach them each step in the standard operating procedures (SOP) they must follow and all other critical processes that they will work with. You don’t want your employees to interpret your SOP documents and other procedures as per their own limited understanding and end up making costly errors.
Cross-train employees to perform basic maintenance and repair tasks. This can reduce the need for certain spare parts and enhance operational flexibility.
10. Make Data-Driven Decisions
Above all, it is important to rely on data derived from your inventory management system and other tools to make demand predictions and other related decisions. Because all the data on management systems is up-to-date, you’ll be able to make the best possible decisions. You can easily maintain optimum inventory levels even with fluctuating demand from your customers.
Similarly, implementing efficient ordering policies such as Economic Order Quantity (EOQ) or just-in-time (JIT) ordering minimize carrying costs while ensuring you have enough spare parts when needed.
Getting your spare parts inventory management under control is crucial in ensuring optimal and efficient operations. Implementing the proper protocols and measures is critical for a streamlined process. Additionally, it is crucial to make the most of inventory management tools and software solutions.
We hope this guide has given you plenty of ideas to integrate into your spare parts inventory management practices. After all, the better equipped you are at running your operations, the easier it becomes for you to deliver on your promises to your customers.
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