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Struggling with Spare Parts Management?

Spare parts procurement can be a challenging process for many businesses, especially those in the manufacturing and maintenance industries. It's important to have a well-defined process in place to ensure that you're getting the right parts, at the right price, and on time. Where do you start?

Spare parts management best practice

Spare parts management is about managing risk; many companies tend to react to that risk rather than take proactive action to reduce it. Take into account the following if you want to start out strong:

Identify the specific spare parts that you need: Before you start looking for spare parts, make sure you have a clear understanding of the exact ones you need. This may require consulting with the manufacturer or vendor of the equipment or consulting with your in-house maintenance team and Bill of Materials (BOM).

Research potential suppliers: Look for suppliers that have a good reputation, offer competitive pricing and have a track record of delivering on time. It's also a good idea to compare prices from multiple suppliers to ensure you're getting the best deal.

Consider purchasing spare parts in bulk: If you know that you'll need a particular spare part regularly, it may make sense to purchase it in bulk. This can save you money in the long run, and it can also reduce the risk of running out of a critical spare part when you need it most.

Create a spare parts inventory: Having a well-managed spare parts inventory can help you stay organized and ensure that you have the parts you need on hand. Consider using a spare parts inventory management software to help you track and manage this across the enterprise - eliminate overstock and enable internal transfers of more costly items.

Set up a regular maintenance schedule: Regular maintenance is key to ensuring that your equipment stays in good working order. By setting up a regular maintenance schedule, you can help prevent costly equipment downtime and ensure that you have the necessary spare parts available.

Predictive maintenance: Predictive maintenance involves monitoring equipment performance and using data analysis to predict when a part is likely to fail. This allows for proactive replacement of the part before it fails, reducing downtime and maintenance costs.

Inventory management and optimization: Inventory optimization is a critical function for most manufacturing companies because, without effective inventory control methods, you risk plant shutdowns. We’ll dive into a few practical methodologies to help you optimize in detail below.

By following these best practices, you ensure your organization can procure the spare parts that it needs, in a timely and cost-effective manner. This can help keep your equipment running smoothly and reduce the risk of equipment downtime.

How to optimize your inventory

  • VED Analysis: You can profile the parts using VED (Vital, Essential, or Desirable) analysis. The analysis of a spare part's criticality should include determining a threshold level for the cost of stock-outs. This helps segment spare parts so that Vital spare parts are tightly controlled and have hard threshold levels, whereas Essential and Desirable items can be progressively less tightly controlled and have softer threshold levels.
    • Vital (V): Vital category items are those items without which the production activities or any other activity of the company would come to a halt, or at least be drastically affected.  
    • Essential (E): A spare part will be considered essential if, due to its non-availability, a moderate loss is incurred.
    • Desirable (D): A spare part will be desirable if the production loss is not very significant due to its non-availability. Most of the parts will fall under this category
  • SDE Analysis: Another factor that helps in controlling the cost of carrying large inventory is the SDE Analysis where SDE stands for Scarce, Difficult and Easy based on the availability of items. This allows you to focus on items with more problematic lead times.
    • Scarce (S): Scarce generally refers to imported items that require longer lead times and are frequently in short supply.
    • Difficult (D): Difficult refers to items that are frequently available domestically but are difficult to obtain.
    • Easy (E): Easy refers to items that are widely available and can often be obtained quickly and locally, with minimal effort.
  • FSN Analysis: A third factor that can be used in right sizing your inventory is FSN analysis. FSN stands for Fast, Slow and Non-Moving items. You can utilize the inventory turnover ratio or inventory turns for a given period to classify the items.

Other methods such as analyzing historical usage, lead times and failure data can be used to establish minimum and maximum levels for each component. This helps in avoiding stock outs before replenishment and determining the maximum level based on storage space, costs of excess inventory, etc.

Spare Parts Procurement

Negotiating spare parts

Negotiating in this category can be a resource-intensive task, especially when dealing with original equipment manufacturer (OEM) spare parts. One of the key elements of successful negotiating in this category is understanding the market since many manufacturers sell directly or have more strict distribution channels than other commodity types.

One of the biggest factors in negotiating OEM spare parts is that as a “sole source”, many manufacturers won’t negotiate pricing except in cases of very large volumes. Additionally, a manufacturer may have distribution policies that only allow certain distributors to have special pricing, meaning if you buy outside of those, you’re likely overpaying. 

Some organizations find that pricing they have negotiated directly with the manufacturer is not being honored because their sites were unknowingly buying from unapproved sources.

Lastly, a recurring theme in effective sourcing is understanding what you’re buying. It’s not uncommon for organizations to continue to buy spare parts from the list provided by the OEM, assuming they built all parts. In reality, a thorough analysis of the manufacturer name and part number could uncover opportunities to transition sourcing to a supplier or distributor to achieve cost savings.

Benefits of spare parts management

The overall benefits of effective spare parts management include reducing both cost and the risk that an organization cannot deliver its product to the customer on time.

Increased uptime - Less emergency maintenance is needed since critical parts management has accurate, complete statistics on the mean-time between failures and other documentation that makes scheduling preventative maintenance more straightforward.

Increased productivity - When an efficient critical parts management program ensures that the right part is available at the appropriate time, missing or outdated replacement parts become issues of the past.

Reduced inventory costs - Carrying costs decrease as "non-critical" parts are removed from inventory, and warehouse staff spends less time searching through SKUs.

Reduction of obsolete and duplicate materials - Obsolete and duplicate materials in your Inventory Management solution can result from ineffective spare parts management. Proactively managing processes to deal with spare part obsolescence, particularly for critical equipment, can help avoid issues when critical equipment needs to be repaired or maintained.

Reduced shipping/freight expenses – Inventory optimization can help with accurately setting up reorder points and safety stock levels so orders can be placed with suppliers promptly and avoiding expedited delivery and off-contract purchases that result in increased costs. 

The DSSI advantage

Over the past 20+ years, DSSI has built its system, procurement processes and supplier relationships in a way that allows customers to streamline their procurement of spare parts.

Our Item Master Discipline ensures each item has the manufacturer name and part number in addition to the item description, supplier, product category, image and other attributes. Our process reduces the overall number of suppliers but optimizes the best source for each category and manufacturing line. The category management team also performs proactive strategic sourcing by identifying categories to target for cost reduction. Want to learn more about how DSSI can help your organization in its spare parts management evolution? Reach out today.