A STUDY OF SPARE PARTS INVENTORY MANAGEMENT CASE STUDY OF REDUCTION HALVE SPARES INTO OPTIMUM LEVEL

MAINTENANCE ORGANIZATION
MAINTENANCE ENG. & ASSET MGMT.
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M.KALAM AZAT ABU BAKAR
UNIVERSITY OF MANCHESTER (2012/13)
ABSTRACT
This paper present a specific case on a spare parts studies in how to reducing halve of
spares in an inventory without jeopardising production. In the first section (REDUCING
SPARE PARTS VALUE PROPOSAL [SECTION I]), the case study is shows in a very
structured manner systematically on the process to halve the spare parts in the inventory
starting from identifying the problem then followed by Pareto Analysis implementation to
identify and separate into two categories of spare parts: the low value and high value spare
parts. Then, the development of the strategies and approaches for each of the category of
spare parts is developed in order to get the recommended spare parts stock list. In the
second section (POLICIES AND STRATEGIES FOR FUTURE SPARE PARTS CONTROL
[SECTION II]) of this paper, the policies and strategies for future spare parts control is
developed to ensure the optimum level of spares will be stocked without jeopardizing
production and the company operation.

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CONTENTS
SECTION PAGE
CASE STUDY: STATEMENT AND SITUATION 3
INTRODUCTION/EXECUTIVE SUMMARY 4
REDUCING SPARE PARTS VALUE PROPOSAL [SECTION I] 5
1) Identify Problem 6
2) Perform Pareto Analysis 7
3) Perform Review Strategies on Low Value Spare Parts 10
4) Perform Stock Movement Analysis on High Value Spare Parts 12
5) Perform Review Strategies for Non-Moving Spare Parts 13
6) Perform Review Strategies for Fast Moving Spare Parts 14
7) Perform Review Strategies for Slow Moving Spare Parts 19
8) Release Recommended Spare Parts Stock List 21
POLICIES AND STRATEGIES FOR FUTURE SPARE PARTS CONTROL
[SECTION II] 22
Policies & Strategies 1: Standardization and Inter-changeability 22
Policies & Strategies 2: Rationalisation 23
Policies & Strategies 3: Utilize Alternative Spare Parts 23
Policies & Strategies 4: Utilize/Replace OEM Supplied Spare Parts 23
Policies & Strategies 5: Obsolete Spare Parts Control 24
Policies & Strategies 6: Control Slow Moving Spare Parts (Non-Obsolete) 24
Policies & Strategies 7: Consignment Stock and Partnerships 25
Policies & Strategies 8: Coding on Spare Parts in CMMS 26
CONCUSION 27
APPENDIX A: Steps to Classify Items into Categories A, B and C 28
APPENDIX B: Evaluation Approach for Risk Analysis 29
REFERENCES 31

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CASE STUDY: STATEMENT AND SITUATION
Imagine that you are the Maintenance Manager in a large manufacturing company.
There is a warehouse which contains spare parts which you control. The parts are controlled
by your computerised maintenance management system.
Your annual maintenance budget is £3m per year made up of £1m of labour, £1m of
contractors and £1m of materials. There are 80,000 different spare parts in the warehouse and
their total value is £2m.
Your boss is the Production Director. One day he comes into your office and says that the
value of spare parts in the warehouse is far too high and he would like you to halve it –
without jeopardising production. He asks you to produce a report describing how you would
go about tackling this problem. Producing this report is your assignment.
Describe in detail how you would go about tackling this problem in a structured manner.
Explain the various steps in your approach: say who you would involve and why. What
would you expect to find as you progress through each step? Having gone through an
exercise to reduce the value of spare parts, how would you keep it under control in the future?

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1. INTRODUCTION / EXECUTIVE SUMMARY
A few months ago, the Production Director, Mr. Robinson had given to me an
assignment as Maintenance Manager to perform and write an assessment report for reducing
halve of the spare parts value without jeopardising production. Indeed, the responsible was
given to me because managing and control the warehouse is my responsible. As we know,
our company, Lafarge Group Pvt. Ltd. is one of the biggest company that have large size of
production plant with very good reputation in local and worldwide in manufacturing and
distribute many types of building materials entire of the world.
Based on explanation from Mr. Robinson, we have a problem which is too much
spare parts in our warehouse and the value of spare parts is too far high. In fact, now 80,000
spare parts were stored in warehouse which the total cost value is approximately 2 million.
The current value of the spare parts now is double from the budget that given for
Maintenance Department. For information, annual budget for Maintenance Department is 3
million overall and divided into 3 sub-budgets which is 1 million for each (labour, contractors
and materials).
Therefore, this report that I had wrote is the suggestions for the solution to solve the
problem that have been stated and discuss above. This report has two essential sections will
describes which is:
1. The steps and approaches (strategies) how would to reduce halve of the current spare
parts value and its benefits that would expected getting from the implementation.
2. The policies and strategies that company would use to keep the value of spare parts
always under control in the future after the implementation of these
suggestions/solutions same as mentioned by our Production Director, it must not
jeopardise production.
All of these two matters would explain details in the next part in this report to make audience
have easily and clear understanding what the steps and approaches that would suggestion as
the solution in implementing this task in order to reducing our spare parts value.

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2. REDUCING SPARE PARTS VALUE PROPOSAL [SECTION I]
As I mentioned in introduction section, this report have two sections and this section
is the first section. In this section, I would explain the details of my proposal on
implementation how to reducing halve of our spare parts value or more if can without
jeopardise production. For starting this challenging task, the illustration draft in flow chart
shown below to make it audience could have roughly understanding on overall steps and
approaches that want to propose by me as Maintenance Manager as well as the responsible
person after one month I tried hard to develop these strategies.
Spares Reviewing Strategies Flow

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1) Identify Problem.
In order to implement this task, the first and important thing is to understand the
problem that needs to solve and define how big/critical it is. As I stated in the introduction
section, the problem is we have too far high value of spare parts in our current holding and
our Production Director asked me as Maintenance Manager (person in-charge warehouse) to
review all of these spare parts to reduce its value. As we know as stated before, we have
80,000 spare parts in warehouse which the value is 2 million (exceed double more than
budget). The summary for this problem statement are:
Problem Statement:
Problems : To far high value of spare parts (80,000 items).
Criticality : High, the value is 2 million (too high value).
Objective : Reducing half the spare parts value without jeopardise production.
For this step to identify the problem, it is not taking too much time because we already have
the data in our Computerized Maintenance Management System (CMMS). So, we know the
number of spare parts and also its value. As the big company, CMMS is like a tool that helps
us affectively in order to planning and implementation of maintenance works etc.
Therefore, after we understood the problem, how big it is (criticality) and what the
aims we want to achieve, it make easier to start the first step for analyzing to review the
whole spare parts which is Pareto Analysis would be perform and will explain details later on
the next part.

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2) Perform Pareto Analysis.
Pareto Analysis is common mathematics statistical method that using to making
decision. Pareto Analysis concept is like a selection of a small or limited number of samples
or tasks which could affect significant overall impact on that matter. The basic principle in
Pareto Analysis is 80/20 rule. The idea behind this rule in the basic principle of Pareto
Analysis stated 20% of causes could give 80% effect.
Pareto Rule
This mean, for example by doing 20% of certain work, it can solve 80% of problems.
Moreover, this analysis method (Pareto Analysis) was used in much analysis in industrial
today for management thinking and in making decision. Besides, the 80/20 rule can be
implementing in observation ways and it seems often to be as a universal truth. This matter
has further proven by statistical in many study cases before such as:
✓ 20% of fault/downtime in plant can make company loosing 80% of profits.
✓ 20% of sales can produces 80% of company profits or revenue.
✓ 20% of inventory/spares items is valued 80% of the total value.
✓ 80% of customer complaints coming from 20% of products or services.
✓ 80% of income/profits generated by 20% of capital investment.
✓ 80% of plant downtime caused by neglected 20% of maintenance routine
tasks.

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Although in some circumstances we cannot confirm it will be accurately same as the
80:20 rule but we cannot deny by using this analysis is very extremely useful methodology to
identify the critical element that we should concentrate (in our case: the numbers of spare
parts that have high and low value) in order to achieve our objective, to reduce our spare
parts.
Staff Involve
In order to implement this analysis, before starts the analysis I will assign four groups
and each groups have an engineer as the leader (logistic engineers) including store
keepers, operators and technicians to reviewing first our spare parts current holding in
warehouse to differentiate between the high and low value items. I as the Maintenance
Manager will give the engineers authorisation to access the CMMS to make easier for them
and their teams to checking for reviewing our company stock control to determine the high
and low value items and also the numbers/quantity of high and low value items. Then, Pareto
Analysis will be performed. These teams also will perform all of tasks for the next steps
until getting a recommended spare parts stock list.
Expectation/Benefits
With implement this analysis on our inventory that we have now which is 80,000
items, I as the responsible person in-charge this task confidently we could determine the
number of items (spare parts) which is have high or low value or even more (high, medium
and low value). From the numbers, I believe the analysis would shows to us as the 80/20 rule
(accurately or more or less) that we must consider.
Assuming we got exactly for the analysis as the 80/20 rule of Pareto principle:
• High value items (spare parts) is 20% from total items = 16,000 items and;
its value equivalent to 80% from total value which is = £ 1.6million
• Low value items (spare parts) is 80% from total items = 64,000 items and;
its value equivalent to 20% from total value which is = £ 0.4million

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Below shows the Pareto Cumulative Graph for the result as we assume. The graph just
illustration to make audience could roughly understand and get look the overall on Pareto
result that I believe it will be expected as 80/20 rule (accurately or more or less) getting in
this analysis implementation. For details in every single steps on Pareto Analysis please
refers to Appendix A: Steps to Classify Items into Categories A, B and C [page 27].
Draft result expected from Pareto Analysis (edited, original source - Manager-Net)
Distribution of spare parts and its value (consider B and C is low value)
20%
80%
20%
80%
A - High Value Spares (Value 80%)
B – Low Value Spares (Value 15%)
C – Low Value Spares (Value 5%)

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Then, after already know/identified the high and low value items and its quantity, the next
step is to set up the strategies to reduce the low value spare parts (1) and perform Stock
Movement Analysis for high value spare parts (2).
3) Perform Review Strategies on Low Value Spare Parts.
For reviewing the low value spare parts, I propose several strategies in order to reduce
the value of our current spare parts holding. The strategies in our approaches are:
1) Indentify Obsolete Spare Parts
Firstly, the teams that I already assigned them would implement this task to identify
obsolete spare parts. Each team must reviewing 1500 items in a month base on their
knowledge, experiences and expertise. Therefore, the reviewing task will complete in
11 months based on calculation because from the analysis stated we have 64,000
items (low value spare parts). I believe they could implement this task very well
based on their performance track records.
From this implementation, we could determine the obsolete spare parts. Besides,
from this work also, they could identify the other spare parts (non obsolete). So,
for these items they must give to me a feedback and report to make suggestion how
much (level) of spare parts stock should be reduced or disposal for the obsolete items
and how much the (level) of spare parts stock should be keep/holds for the non-
obsolete items in our warehouse.
2) Order When Required
Secondly, from the reviewing works also could identify the items that just using
during certain event such as shutdown and plant modification on manufacturing
production line. So, if these types of items (also known as special items because just
only using in certain event) is recognise by them, I suggest for the future stocks order
just make purchasing only when required and also order with the amount that we want
to use it.

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Therefore, with implement this strategies, it not only can reducing our spare parts
value but also reducing inventory management cost. Even maybe it will not save
too much our spending on items value/cost (because of this is low value spare parts),
but I believe the saving from performing this task will give us some contribution in
order to reducing our current spare parts holdings. In addition, we still do not know
the actual value would be reducing as a result before my teams implement it.
3) Rationalisation – Reduce Number of Stock Location
Thirdly, we can use rationalisation concept to reduce number of stock locations. For
instance, we have used 300 conveyor motor (low value items – for small conveyor)
which using at different locations in our manufacturing plant. So, for the spare parts
holding we do not need to keep by location as now, but we using this formula (below)
for getting rational number for spare parts holding quantity for entire of our plant, not
by each location.
Number/quantity of conveyor motor current holding:
➢ 300 locations and each location holds 3 conveyor motor = 900 items
By using the rationalisation formula, √N:
➢ Rationalise the total number of conveyor motor, √300 = 17.32 ≈ 18 items
So, by using rationalisation calculation/concept/method will give us the rational
number of spare parts that we should holds. Therefore, it will reduce the number of
our spare parts holding from 300 items as before to only 18 items. The result
sequencing from this implementation will reduce the spare parts value (purchasing
cost). Besides, company also will not wasting Maintenance Department’s budget too
much for store and inventory management for 300 items.

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4) Perform Stock Movement Analysis on High Value Spare Parts.
For these spare parts (high value spare parts), we need to give more focused and
effort. It is because these items had been given significant value in our current spare parts
holding. Even the quantity just only 16,000 from total spare parts which is 80,000 (20% from
total items) but the value is about or around 1.6 million from 2 million (80% from total
value).
Therefore, for reviewing the high value spare parts, I propose we need to perform
Stock Movement Analysis. The purpose of this analysis is to determine:
1) Non-Moving items (assuming = 3,000 items)
2) Fast Moving items (assuming = 5,000 items)
3) Slow Moving items (assuming = 8,000 items)
So, we need to classify the criteria for both of these groups (Non, Fast and Slow
Moving items). I consider:
➢ The items that not required/not using/not move in a year for replacement etc. as Non-
Moving items.
➢ The items that required equivalent to 3 or more in a year for replacement etc. as Fast
Moving items.
➢ The items that required below than 3 in a year for replacement etc. as Slow Moving
items.
In this task/analysis, it needs the proper methodology and carefully implementation in
order to obtain the effective result (spare parts recommended stock list) in the end later. The
numbers of items stated above just an assumption (example). The numbers does not
important, but the main point I want to explain is what the strategies and approaches that
should to use and how to implement it.
The benefits we will get from Stock Movement Analysis implementation is we will
know exactly all items and their classification (types - Non, Fast, Slow moving items) based

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on our criteria above. With the result, it will make easier to allocate strategies in our next
approaches on each types of these 3 items.
5) Perform Review Strategies for Non-Moving Spare Parts.
For reviewing the non-moving spare parts, I propose several strategies in order to
reduce the value of our current spare parts holding. The strategies in our approaches are:
1) Determine Necessary Items
Firstly, the teams must determine the necessary items. Necessary items is defined as
items that still need or valid to use in our manufacturing plant for maintenance
purpose. If the items would be removing it will give bad effect to the maintenance
jobs thereby also to the production operation if any breakdown or fault happen which
needed a replacement. This task is very important to avoid us from removing any
necessary items or classify the necessary items as unnecessary items.
For this task, the teams assigned by me will tracking and identify the necessary items
and prepare the list. So, it will make us always keep all necessary items in store even
this items classification is non-moving. Maybe, some or most of these items have high
reliability and not have any replacement needed in a year. Therefore, we still need to
keep these items for getting smoothly in maintenance and also without jeopardise
production operation.
2) Determine Unnecessary Items
Secondly, at the same time the teams must tracking and identify the unnecessary
items. Unnecessary items is defined as items that not valid to use (broken,
malfunction, old spare parts, no longer for use or obsolete etc.) for maintenance
purpose and it would not jeopardise maintenance jobs and production operation if we
not keep it. So, from implementation of this task, the teams will recognise the listing
all of items that we need to arrange for disposal (return to vendor, re-sale, donation to
subsidiaries or partners and sale to scraps dealer or made local destruction for broken
and malfunction items).

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From this task, we can reducing the unnecessary items and know exactly the items
that we do not need to store in future. Besides, with implement disposal plan such as
donation to subsidiaries or partners, it will create better relationships among us and
also given benefits for each others. They get spare parts that can be use by them in
future and we can reduce our unnecessary items.
6) Perform Review Strategies for Fast Moving Spare Parts.
For reviewing the fast moving spare parts, I propose several strategies in order to
reduce the value of our current spare parts holding. The strategies in our approaches are:
1) Set Optimum Level
Firstly, the teams were appointed by myself would implement to review all of this
items. The main point they must doing this task is to set back the optimum level that
we should keep for these spare parts. For setting the new optimum level for fast
moving items we must consider based on these factors which are:
i) Equipment reliability
Reliability means the ability of machines or plant performing and maintaining
its function in routine circumstances (related to MTBF).
ii) Lead time
Lead time means times from making an order for any spare parts until
received the items.
iii) Spare parts cost
Spare parts cost (total) means the costs that including holding cost and
downtime cost.

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Total cost of spare parts calculation and analysis (example)
iv) Downtime cost
Downtime cost means the loosing cost if the plant down caused by any
equipment failure without having spare part for a replacement.
Then, based on these factors, the engineers must implement analysis. I suggest to the
top management to buy software called APT Spares that make us easy to perform
analysis. Below shown an example that has been given to me by company provider
this software how APT Spares software perform it analysis:
Cost
No of Items Stocked
Cost
No of Items Stocked
0 1 2
Downtime Cost
Total Cost
Holding Cost
Downtime Cost
Downtime Cost
Total Cost
Total Cost
Holding Cost
Holding Cost
NO. OF ITEMS STOCKED
C
O
S
T

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Example:
Analyses result from APT Spares software tools (example).
Spare
Parts
Description
Cost MTBF
in
Years
Lead
Time
(weeks)
No
of
Items
on
Plant
No
of
Spares
Expected
Failures
in
Lead
Time
Out
of
Stock
Risk
Downtime
Cost
Holding
Cost
Total
Cost
Best
Selection
Rotary
Pump £20k 5.00 14 5 0 0.2308 20.608% £186,953 £0 £186,953
‘’ £20k 5 14 5 1 0.2308 2.286% £20,743 £472 £21,215
‘’ £20k 5 14 5 2 0.2308 0.172% £1,564 £945 £2,509
‘’ £20k 5 14 5 3 0.2308 0.010% £89 £1,417 £1,507 ✓
‘’ £20k 5 14 5 4 0.2308 0.000% £4 £1,890 £1,894
‘’ £20k 5 14 5 5 0.2308 0.000% £0 £2,362 £2,362
With using this software/tool, we can easily make analysis and taking the result in making our decision. In the case above for rotary pump, the
company know exactly the number of spare part that they should holds with minimum cost (optimum level). So, the teams must perform this
analysis such as APT Spares model shown above by manually. Hopefully, our top management will accept my suggestion and approve budget
for purchasing this tool.
From implementation this task, the new optimum level that we need to store for those spare parts will be identify. So, we can reduce our current
spare parts value and just store the minimum numbers that really needs.

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2) High Lead Time Item Always Available
Secondly, based on result in Set Optimum Level task, we must do more analysis and
consideration for the spare parts that have high lead time especially. This is to ensure
we have spare parts for a replacement when required.
Critical element in lead time
So, we must know exactly the critical element for these spare parts which are:
1. How long the lead time will taken and;
➢ Confirm with suppliers.
2. How many failure we predicted to occur for the equipment during lead time.
➢ Double check with our data (maintenance records) in CMMS.
Example:
Equipment = Compressor motor
Lead time = 12 months
Predicted failure = 2 times
Minimum spares = How many spares that should holds?
So, the minimum number of compressor motor spare part that we must holds is 2. In-
case we have failure, our maintenance team could done a replacement as soon as

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possible without jeopardise production operation. Therefore, downtime can be
avoided.
3) Consignment Stock and Partnerships
Thirdly, as the responsible person I will try to find opportunity to making partnerships
with our key suppliers. Then, making deals with them for consignment stocks for our
fast moving spare parts.
Consignment stock and partnerships always good to save inventory cost
With this strategy, we will get advantage which is we do not need to holds any spare
parts equipment and just pay for them when we need it (when we taking spare parts
from them/suppliers).

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7) Perform Review Strategies for Slow Moving Spare Parts.
For reviewing the slow moving spare parts, I illustrate this kind of strategy in order to
reduce the value of our current spare parts holding. The strategies in our approaches are
shown as below.
Slow Moving Spares Reviewing Strategies Flow
For reviewing the slow moving spare parts, I propose these strategies for the teams to
implement it step by step to get the best recommended spare parts stock list as below:
Step 1: Identify Obsolete and Non-Obsolete Items
Performing this task is to separating between both of these items into two categories
(obsolete and non-obsolete). The purpose is to make easier to implement next step for these
items based on their categories.
Step 2: Arrange Disposal for Unnecessary Items
Arranging disposal (such as return to vendor, re-sale, donation to subsidiaries or
partners and sale to scraps dealer or made local destruction for broken and malfunction items)
for unnecessary items (items which not valid to use - broken, malfunction, old spare parts, no
longer for use for maintenance purpose).

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Step 3: Categorization Non-Obsolete Items
For the non-obsolete items the teams must implement categorization all of spare parts
into these 3 categories:
i) Special items
means the items that only use in certain event such as shutdown.
ii) Adequate Warning items
means the items that have features like we could detect and know early fault on
it exactly (e.g.: from condition based maintenance).
iii) Inadequate Warning items
means the items that not have features to detect any early fault on it. These
items will be divided into two sub-categories which are low/medium cost and
high cost.
Step 4: Order When Required for Special Items
For special items, I suggest to make an order only when required at the amount
needed to use. It is because this item will not require after an event.
Step 5: Do Not Stock for Adequate Warning Items
For adequate warning items, I suggest to make an order when the first fault identified.
We could recognise any fault by using condition based maintenance approach.
Step 6: Direct Issue Replacement for Low/Medium Cost Inadequate Warning Items
For these items, I suggest just make direct issue replacement. We can use APT Spares
software/tool to helps maintenance engineer on this matter.
Step 7: Perform Risk Analysis for High Cost Inadequate Warning Items
For these items, I propose implementation of full risk analysis/assessment. The teams
will be assigning to do this task also in order to get the figure of business implication being
out of stock and also the costs of holding stock. All of these items must through this analysis
because of their price is too high. For instance, an expensive large motor which the price is in
range £400,000 to £450,000 that has in our production plant in line 7. Moreover, that value is

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almost equal to ¼ from current holding value and ½ from our annual budget value. For
details in every single steps on Risk Analysis please refers to Appendix B: Evaluation
Approach for Risk Analysis [page 28].
With implementation all of these 7 steps, I confidently and believe it will reduce at
nearly 50% value from total for these slow moving items. In addition, it will give us a new
experience and the teams could gain knowledge through this assessment that would give
benefits for them, other staffs (e.g.: company could use them to train other staffs) and our
company especially on how to reviewing spares.
8) Release Recommended Spare Parts Stock List.
After implementation all of reviewing all of our 80,000 spare parts with many
strategise and approaches, the teams must coming out with recommended spare parts stock
list. So, we will use the list as our guide to purchase, holding and keep at optimum level as
recommended in future.
I confidently and believe it will reduce around or nearly 50% from our current spare
parts value which is £2 million (reduce to £1 million). I can said like that, because before I
propose all of these kind of strategies and approaches, I already have made a lot of research
from many journals on inventory management and also studies a lot of cases from others big
company that have similar problem like our company in their pass on how they
implementation to manage and reduce their spare parts value.

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3. POLICIES AND STRATEGIES FOR FUTURE SPARE PARTS CONTROL
[SECTION II]
In this section, I want to propose and explain details about the policies and strategies
that we must implemented in order to keep our spare parts always under control in future. In
fact, there is no advantage from the implementation of all the analysis and assessment to
reduce spare parts value without maintain it and perform continuous improvement from time
to time. Therefore, I suggest to make all these policies and strategies below (will explain
details later) as our approaches to maintain our spare parts value and do improvement in
future.
Policies & Strategies 1: Standardization and Inter-changeability.
This policy must be implemented for any future projects in our manufacturing plant
(e.g.: new projects, modifications etc.).
➢ Reduce the number of spare part options. This means, implementation for
using the standard spare parts.
➢ Utilize as much as can spare parts that could inter-changeability (e.g.: pump).
So, with that company could reduce cost for purchasing many types of pumps and
just only purchase one type that can used for all area in our manufacturing plant.
➢ Utilize modular design for spare parts. Modular design means a part can be
connected in many ways. For instance, company can use modular spare parts from
the small things such as bolt and nut until for the large item such as pumps. Below
shows a picture one types of modular pump from my survey that we can use in
future.
Example: BE Modular Design Pump (source from Sulzer web)

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Policies & Strategies 2: Rationalisation.
➢ Reduce number of suppliers. We must try as much in reducing number of our suppliers.
I propose just appoint between 2 to 4 companies that could supply everything for us (now
we have 9 suppliers from different companies). This is very important decision why I
choose four only (maximum) suppliers because if the two main suppliers could not supply
for us (e.g.: late delivery, unavailable spare parts etc.), we still can get any spare parts
from another two companies as backup (backup planning).
➢ Reduce number of stock locations. Use this formula √N to get the rational numbers that
we should hold. [Same strategies as explain in section I, Reducing Spare Parts Value
Proposal under sub-topic Perform Review Strategies on Low Value Spare Parts in
page 11.]
Policies & Strategies 3: Utilize Alternative Spare Parts.
➢ Utilize alternative spare parts. In future, as Maintenance Manager I will try searching to
find any possibilities for getting cheaper spare parts with the same quality as our
manufacturing plant specifications requirement. In the same time, I would asking all my
engineers in my department to do some research (searching to review spare parts market
price) and then they must give feedbacks and all information to me about companies that
have possibilities could become as our suppliers with low price and have standard quality
or better items to our company in future. So, any negotiation could make after that.
Policies & Strategies 4: Utilize/Replace OEM Supplied Spare Parts.
➢ Utilize or replace OEM spare parts especially for main and critical equipment/machine.
Therefore, I would assign my staff to handle this matter. The staff must do negotiation
directly with the OEM suppliers. With this implementation, company could get original
and high quality spare parts even company should pay more. This is because to ensure the
original and quality spare parts always utilized on main and critical equipment/machine in
our manufacturing plant to avoid any possibilities problem on that main or critical items
which can jeopardise our production operation.

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Policies & Strategies 5: Obsolete Spare Parts Control.
➢ We must always control on obsolete spare parts. As everyone knows our spare part
controlled in this company was using CMMS. So, I would assign Maintenance Engineer
and technicians in my department to track records for reviewing obsolete spare parts from
the data in CMMS in every 6 months. The purpose this task is to avoid excessive obsolete
items. Moreover, to track obsolete spare parts is an easy task because in our CMMS have
stated ‘where used’ (the location all spare parts used) but this would taking quite too
much time in order to identify spare parts caused by too much spare part need to review.
Policies & Strategies 6: Control Slow Moving Spare Parts (Non-Obsolete).
For the non-obsolete slow moving spare parts, it can be divided into 3 classifications
which are special, adequate warning and inadequate warning items. [Same strategies as
explain in section I, Reducing Spare Parts Value Proposal under sub-topic Perform Review
Strategies for Slow Moving Spare Parts in page 19-21, but for future spare parts control
have more explanation below.]
Therefore, I propose to top management taking this strategy as our policy and rules in
future to ensure the best way in order to achieve cost-effective without jeopardise production
operation in purchasing spare parts.
➢ For special case or event such as turnaround/shutdown or plant modification event, the
spare parts must be ordered when required for arrive just in time. So, company do not
need to stock all spare parts that required for the event.
➢ For adequate warning case, the spare parts no need to stock. For instance, usually for
equipment/machines are can monitoring using condition based maintenance (CBM)
techniques. Therefore, our technicians could detect any problems/fault at the early stage
using such as condition monitoring instrument. Besides, from CBM implementation, it
can provided warning before failure and also lead time to failure (P-F Interval). So, we
must change our maintenance approach from usual to use more CBM technique.
Moreover, with implementation of CBM in our plant, all of equipment/machines whether
have random or periodic of failure patterned also could be detected. In conclusion,
company not need to stock any spare parts and just order the items that required when the

Page | 25
first warning or deterioration have been detected. I suggest to top management to buy
more instruments like hand held vibration monitoring, thermograph sensor etc. to ensure
each technician teams under maintenance department especially for mechanical section to
have at least three for each these kinds of instruments. It is because our plant is very huge.
➢ For inadequate warning case, I propose we should use direct issue replacement (also
known as ‘use one, buy one’) for low and medium cost equipment/machines while for
high cost must implement risk analysis for that equipment/machines. I consider now low
cost = £0-£10k, medium cost = £10k-£100k and high cost = > £100k (cost per item).
Therefore, for low/medium non-obsolete slow moving items, we can using APT Spares
software/tool [as I mentioned before in section I, Reducing Spare Parts Value Proposal
under sub-topic Perform Review Strategies for Slow Moving Spare Parts (Step 6) in
page 20] for decision making in purchasing and only hold how many spare parts that we
really need (suppose have) with minimum/optimum total cost of spares while for the high
cost must perform full risk analysis/assessment to analyse business implications of being
out of stocks and also the holding cost of stocks [same method as mentioned before in
section I, Reducing Spare Parts Value Proposal under sub-topic Perform Review
Strategies for Slow Moving Spare Parts (Step 7) in page 20-21].
Lastly, all data such as lead to failure (P-F Interval) trending and result from risk
assessment on high cost items must be keep in our CMMS. So, it would make me and other
person in-charge could make decision rapidly, accurately and smoothly in order to get any
spare parts required in future.
Policies & Strategies 7: Consignment Stock and Partnerships.
➢ Creating partnerships with our key suppliers for consignment agreement. With
implement this strategy with our key suppliers, we could only pay for the spare parts or
materials when we taking it from them. The main point on this agreement is we do not
hold stocks but the suppliers hold for us. So, with this strategy we could save/reduce our
company expenses for holding cost.

Page | 26
Policies & Strategies 8: Coding on Spare Parts in CMMS.
➢ Allocate coding on spare parts will make us easy to exactly know about the items
information with just several numbers and letters. Below I give one example:
1st
digit - original or custom made
2nd
,3rd
digits - imported or local, country
4th
,5th
,6th
digits - model of machine
8th
,9th
,10th
digits - size of spare parts
11th
digit - class of spare parts
12th
digit - cost/value classification (High-H,Medium-M,Low-L)
The example is to give audience understanding what I have been thinking about this matter.
For details in using of numbers or letters could be set up later. So, with implementation this
in future, it will make easy to make an order next time. Besides, the most important is it helps
for us to minimize duplication of spare parts. Consequently, it will reduce numbers and also
value of our spare parts holding.

Page | 27
4. CONCLUSION
In conclusion, with implementation this proposal [section I], I believe we will reduce
around 50% from our current spare parts value holding. As I proposed, I was tried so hard to
think, made a lot of research from many journals on inventory management and also
studied a lot of cases from others big company on how to reducing halve of our current
spare parts value without jeopardise production operation which can stop our production
and consequently will make company lose huge profits caused by downtime.
Besides, after the implementation this proposal (Reducing Spare Parts Value), as the
responsible person for our spare parts management, I emphasize that we must continue to
maintaining and improving with implementation of policies and strategies as I already
briefly details in [section II]. For me, there is no point if we just only implement works to
reducing spare parts value without maintaining it. Therefore, I pointed out that both of these
proposals [section I and II] must be implementing.
Prepared by,
Maintenance Manager.

Page | 28
APPENDIX A: Steps to Classify Items into Categories A, B and C.
1. Find out the unit cost and the usage of each material over a given period.
2. Multiply the unit cost by the estimated annual usage to obtain the net value.
3. List out all the items and arrange them in the descending value (Annual Value).
4. Accumulate value and add up number of items and calculate percentage on total inventory
in value and in number.
5. Draw a curve of percentage items and percentage value.
6. Mark off from the curve the rational limits of A, B and C categories.
Source: Izmir University of Economics, Turkey (Year: None)

Page | 29
APPENDIX B: Evaluation Approach for Risk Analysis.
1. Manufacturers’ recommendations (sometimes ‘filtered’ by engineering judgement).
2. Economic Order Quantities (EOQ’s) and ‘rules-of-thumb’ approaches (e.g. √N + 1, where
N is number if installed units!).
3. Target availability calculations: probabilistic, often simulation-based and geared to achieve
a pre-determined service level, such as 90, 95 or 99%.
4. Optimum Total Cost & Risk calculations: also probabilistic, but putting a price on the
impact of unavailability - so the right (optimal) service level can be identified.
To accurately model these spares decisions, these factors must be taken into account in the
evaluation. These factors are listed in Table 1, together with indicators to show if are
specifically addressed by each of the four approaches mentioned above (Y= included,
?=sometimes given subjective consideration):
From this, the failings of each approach are evident and it is clear that the only approach that
embraces all the factors that must be taken into account is approach number 4 - Optimum
Total Cost & Risk calculations. This is the approach that was therefore will use and built into
the deliverable tools ‘APT-SPARES’ and ‘APT-STOCK’.

Page | 30
The ‘Optimum’ Spares Holding
The optimum spares holding are that level of spares which incurs minimum total impact to
the business as a whole i.e. the minimum combination of holding costs (i.e. storage costs, in
storage maintenance costs etc.) and the risk exposures to the consequences of spares
unavailability when needed (usually equipment or production downtime costs).
Slow-moving spares (in our case – perform Risk Analysis on inadequate warning items) are
generally responsible for a large part of the inventory value of any organisation. They form
an important part of the inventory management responsibility. The benefits of holding spares,
however, lie in operational areas (production or maintenance) - outside the scope or view of
warehouse or inventory management functions. To relate the benefits to the ownership costs
involved, therefore, it is necessary to consider the impact of alternative holding strategies on
the total business profitability, rather than just from a stores (as fewer spares as possible) or
operations (as many spares as possible) point of view. This total business impact is a
combination of costs and risked costs. When this combination is at a minimum, the optimum
spare holding has been identified.
While costs such as the purchase cost, storage costs and in-storage maintenance costs can be
determined fairly easily (they are actual costs incurred), downtime impact and potential
write-off costs (if the spare is not used) are, by comparison, more difficult. Such probabilistic
or risked costs represent average costs incurred over a long period i.e. a combination of no
costs for the majority of time, and an occasional large cost event. APT SPARES is a software
tool developed by the MACRO collaborating companies to calculate these risk exposures for
each level of spares holding and the optimal combined strategy.
Source: Calculating Critical Stockholding for Spares by John Woodhouse, Managing
Director, The Woodhouse Partnership Limited (2003)

Page | 31
REFERENCES
➢ Lecture Notes:
1. Paul Wheelhouse (2013). Maintenance Organization – Power Point Slides. University
of Manchester, George Begg Building on 18–22th
of February 2013.
2. Paul Wheelhouse (2013). Maintenance Organization – Course Manual. University of
Manchester.
3. Paul Wheelhouse (2013). Spares Analysis – Materials on BlackBoard. University of
Manchester.
4. Paul Wheelhouse (2013). Spares Review Case Study – Materials on BlackBoard.
University of Manchester.
➢ Journal:
1. Behzad Ghodrati, Per-Anders Akersten, Uday Kumar (2007). Spare Parts Estimation
and Risk Assessment Conducted at Choghart Iron Ore Mine – A case Study. Journal
of Quality in Maintenance, (None), pp. 353-356.
➢ Articles:
1. Rene Botter, Leonard Fortuin, Eindhoven University of Technology, Faculty for
Technology Management (None). Stocking Strategy for Service Parts – A Case Study.
2. John Woodhouse, Managing Director, The Woodhouse Partnership Limited (2003).
Calculating Critical Stockholding for Spares. Involved in The MACRO Project –
Cost/Risk Evaluation of Asset Management Decision.
3. Source: http://www.productivity.in, Productivity Portal India (None). Spare Parts
Management. Links:
http://www.productivity.in/knowledgebase/Plant%20Engineering/g.%20Spare%20Par
ts%20Management.pdf (it does not working if clicking directly, please copy & paste
in internet browser)
4. Source: http://homes.ieu.edu.tr/, Izmir University of Economics, Turkey (None). ABC
Analysis (Inventory). Links:
http://homes.ieu.edu.tr/~ykazancoglu/BA437/ABC%20analysis%20YK.pdf (it does
not working if clicking directly, please copy & paste in internet browser)

Page | 32
➢ Presentation Slides:
1. Dr. I. Selvaraj, Indian Railways Medical Service (None). Material Management. Sree
Ramachandra Medical College, Porur, Chennai, India.
2. Tony Saker, Principal & General Manager (2010). Strategic Slow Moving Spares
Levels Optmisation. UMS Group Inc. Asia Pacific, Australia.
➢ Websites:
1. Mind Tools (1996-2013). Pareto Analysis – Using 80:20 Rule to Prioritize (online).
Available at: http://www.mindtools.com/pages/article/newTED_01.htm
2. Duncan Haughey (2013). Pareto Analysis Step by Step (online). Available at:
http://www.projectsmart.co.uk/pareto-analysis-step-by-step.html
3. Steve Bonacorsi (2013). Step by Step Guide to Using Pareto Analysis (online).
Available at:
http://www.processexcellencenetwork.com/six-sigma-quality/articles/using-pareto-
analysis-to-divide-and-conquer-impro/#.UUgLHByeNhQ
4. Statistical Concepts Blogspot (None). Statistical Concept and Analytics Explained -
Pareto Analysis (online). Available at:
http://statisticalconcepts.blogspot.co.uk/2010/03/pareto-analysis.html
5. ABC Pareto Blogspot (None). ABC Analysis or Pareto Analysis (online). Available
at: http://abc-pareto-analysis.blogspot.co.uk/2011/07/abc-analysis-or-pareto-
analysis.html
6. Modern Machine Shop (2013). Using A Pareto Analysis To Tackle The Right
Problems (online). Available at: http://www.mmsonline.com/columns/using-a-
pareto-analysis-to-tackle-the-right-problems
7. Bryan Weir (None). Computerised Maintenance management Systems (online).
Available at: http://www.plant-maintenance.com/articles/CMMS_systems.shtml
8. MaviTec (2013). Advantages of Using OEM Parts (online). Available at:
http://www.mavitec.com/products/parts-and-service/advantages-of-using-oem-parts/
9. APTools.com (2009). APT Spares – Cost/Risk Evaluation of Spares (online).
Available at: http://www.aptools.co.uk/apt_spares.pdf
10. Graham Briscoe (None). Pareto Analysis – The 80:20 Rule (online). Available at:
http://www.managers-net.com/paretoanalysis.html

Page | 33
➢ Picture/Image:
1. Sulzar (None). BE Modular Design Pump [Online image]. Available from:
http://www.sulzer.com/en/Products-and-Services/Pumps-and-Systems/Single-Stage-
Pumps/ISO5199-Pumps/Other-ISO5199-Pumps/Process-Pump-BE.
[Accessed 22/03/13].

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