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RELIABILITY-CENTRED
SPARES
90,000
Someone must choose the required service 80,000
level for each part. Very high service levels, 70,000
often well above 99%, are needed for critical
60,000
engineering spares. Here we encounter
Inventory Value
50,000
problems with human perceptions of risk,
since we all have problems in estimating 40,000
90%
Economic Order Quantity
80%
70%
The Economic Order Quantity (EOQ) method
60%
works by striking a balance between the cost of
Service Level
Whatever techniques are to be used to set stock In response to these pressures, maintenance
levels for each item, it is clear that far more care moved away from the principle of fixed interval
and effort should be taken on the analysis of A planned overhaul or replacement towards a
items than on B or C classifications. reliability-centred approach, where maintenance
is tailored to the requirements of each item of
equipment in its own operating context. The
Some attempts have been made to apply the result is the widespread use of condition moni-
ABC system to engineering inventory, since toring equipment to detect problems before a
there is little point in optimising stocks of a failure occurs, as well as the recognition in
100 seal if 20,000 bearings are massively some cases that it is simply not cost-effective to do
overstocked. Traditional ABC analysis does not
anything to prevent failure.
apply directly to slow-moving parts, but it will
be shown later that a similar principle provides
However, if the function of our engineering in-
a valuable way of achieving fast payback on a
ventory is to support maintenance, we must
stock analysis programme.
make certain that our stores respond to changes
in maintenance policy.
Operations Research
2 The Way Forward
Operations Research (OR) encompasses a broad
variety of mathematical techniques which are What is needed is not a new purchasing system
applicable to business decisions, and many or new procedures, but an auditable method to
commercial software systems are available ensure that inventory fully supports operations
which are applicable to slow and fast moving and maintenance. The new method described
items. Far greater success has been achieved in here is an extension of Reliability-centred Main-
this area with fast moving stock than with slow tenance to cover spare parts and inventory serv-
moving insurance spares. In fact, despite the ices. It is applicable to any engineering inven-
promise of some queuing theory models, these tory, whether fast-moving consumables or slow-
techniques can recommend increased stock levels moving insurance spares. In practice the great-
which go against all common sense. est return is usually achieved by a detailed
analysis of slow-moving stock.
While it is possible to argue that the assump-
tions made in these models are unrealistic (for However, before analysing spares requirements,
example, the use of a fixed holding cost per it is essential to ensure that we understand what
item), mathematical tools fail not so much be- we are supporting:
cause of their underlying models and assump-
tions, but usually because the blind application Step 1: Ensure that the maintenance require-
of techniques without understanding the under- ments of the asset(s) are clearly under-
lying causes of demand: the operation and stood
maintenance of equipment.
No spare parts policy or inventory system can
do anything to make an ineffective maintenance
New maintenance techniques schedule more effective. An efficient inventory
system may even increase costs if it simply sup-
During the 1980s and into the 1990s the process plies parts more quickly to a poorly planned
of change in industry has continued to acceler- maintenance programme.
ate. The industrial climate has demanded im-
proved availability and reliability, greater safety Spare parts support both planned, preventive
and environmental integrity together with ever maintenance programmes and breakdown
higher levels of cost effectiveness.
One of the most significant changes brought Penalty clauses for late delivery
about by RCM is a move away from the
planned, preventive replacements of a second Cost of overtime to make up lost production
generation maintenance system towards on-
condition tasks. These involve checking the Lower process efficiency or higher raw mate-
condition of a component and overhauling or rial costs
replacing it only if its condition is unacceptable.
This causes problems for procurement, since we Poor product quality, leading to returns, re-
do not know whether a part will be needed until work and poor customer impression
the results of monitoring are available. Never-
theless, using the RCS rules it is often possible On the other hand, there are costs associated
to avoid holding stocks on site. with holding spare parts. As well as the cost of
purchasing the initial stock there are continuing
expenses while the parts are held:
Traditionally these expenses have been bundled In the first example the decision is whether or
into a single holding cost which is a fixed per- not to invest in a spare pump. If we buy a spare,
centage of the part's purchase price. The idea is it will cost 40,000 immediately. On the other
to spread the stores administration costs over hand, if we do not, the business will suffer be-
all the lines in stock. It works well for fast- cause of production downtime in the future. So
moving parts, but the costs of holding slow- the overall decision does not just involve a bal-
moving items vary widely depending on their ance between costs and benefits, but also de-
physical size, shelf life and maintenance re- pends on the timing of these costs.
quirements. The optimum spares level is a bal-
ance between total holding costs and the cost of The question is different in the second case: is it
stockouts: high downtime costs are incurred if worth disposing of spares that we already have, or
stocks are too low, but holding the spare parts is should they be retained in case they are needed? We
expensive if the level is too high. may recoup a little of the parts' value if we sell
them; however, if the parts are then eventually
A second and more serious disadvantage of the needed, the cost of lost production could be far
holding cost method is that it always recom- greater than the scrap value.
mends a single spares holding without taking
any account of the fact that, while the benefits of Finally, example 3 looks at another aspect of the
an increased spares holding are felt over a pe- spare parts problem. There is clearly no point
riod of time, the cost of purchasing stock is felt in reaching the end of plant life with a full com-
immediately. The problems of this approach plement of spare parts (although this is exactly
can be seen by considering three examples: what the traditional approach would suggest).
The question here is: how should stocks be run
Example 1: Pre-commissioning down toward the end of plant life?
A new chemical process relies on a magnetically
driven pump. If the pump fails, the process is shut
down at a cost of about 500 per hour. The manu- The traditional approach
facturers estimate that the pump will fail cata-
strophically about once every three years, but it is
fails because it does not
not possible to predict when it will fail. If a spare answer the most
were not available, the manufacturer could supply
a new unit within five days, but nevertheless they fundamental question: is it
recommend that one spare pump should be held
on site at a cost of 40,000. Are they right?
worth buying a spare
part?
Example 2: Stock Review
A cost review in steel plant has valued the engi- In all of these cases, the traditional approach
neering spares inventory at 50M, of which parts fails because it does not answer the most fun-
worth 10M have never been used over the plant's damental question of all: is it worth buying a
10 year life. Two spare gearboxes, priced at spare part, and if so, how many should be pur-
30000 each, are part of the non-moving stock.
chased?
The consultants carrying out the review recom-
mend that they should be sold as scrap. Are they
right? The through-life method answers the stock ana-
lyst's real question: should we spend money
now (by buying stock) in order to secure lower
Example 3: End of Plant Life downtime costs in the future?
An offshore installation uses water injection to
maintain pressure in an oil reservoir. The pump This suggests that we can look at the inventory
bearing costs 5000, and current policy is to hold 2 decision as an investment. If we buy a spare,
A Reliability-centred Spares review can be un- Clearer and more profitable relationships
dertaken either before buying spare parts for a with suppliers
new asset or when an asset has been in service