Spare parts are inventory items and their administration is derived from inventory management techniques.
Opinion by Nyasha Chizu
Dependence and independence of spare parts determine whether a procurement decision shall be arrived at by monitoring stock levels or application of material requirement planning (MRP).
Independence and dependence of spare parts can be determined by use.
Some processes such as routine maintenance require that certain components are available for replacement at certain intervals at the same time.
Such spares are ordered in quantities that match the frequency of the planned maintenance. MRP is therefore appropriate for provisioning of such character of spare parts.
Spare parts with independent demand relate to components that could be replaced without any relationship with other components. Most breakdown spare parts requirement is independent in demand.
The part replacement does not normally and systematically prompt replacement of other components.
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Monitoring of the re-order level will be sufficient to determine when to order such spares.
It is critical to note that some parts can be of both dependent and independent classes of demand.
Some spares can be used for fault rectification or breakdowns and routine maintenance at the same time.
The planning mechanisms of material requirement planning and re-order level would need appropriate blending. It is a pity that most parts managers do not understand this concept and end up bungling up spare parts management.
Symptoms of clumsy spare parts management include continuous increase in the value of spares investment beyond normal levels supported by economic concepts.
Optimum spare parts stock levels is determined by the level of activity in the organisation taking into account the principles of demand types discussed above.
If spare parts inventory volume is increasing when the quantity of the equipment supported has not increased indicates poor spare parts management.
Using the same assumption of holding constant the equipment supported, if the value of spares parts inventory increases beyond normal inflation rate, the spare parts manager will be failing. Availability of spare parts is another indicator of efficient management.
Spare parts critically required are either not available or desired quantities are not available. Spare parts not required will be in abundance.
To some extent, an organisation may experience shortage of storage space for spare parts yet at the same time; spare parts critically required will be not available.
Shortages and excesses are equally bad in spare parts managements.
From a production perspective, unavailability of spare parts may cause excessive down time.
Uneven production results in frequent lay-off of staff at a cost to the company or hiring of manpower to cover up lost production time. Down time increases production costs without any value addition to the final product making it uncompetitive.
Poor spare parts management increases cancellation of order by customers due to failure to adhere to delivery schedules. From a marketing and finance perspective, it reduces volume of sales, revenues, profits and goodwill.
The number of rush orders and cash purchases increases in a procurement perspective.
Rush orders do not allow for proper due diligence of costs affecting competitiveness of the ultimate products. Rush orders in many instances require the quickest means of delivery which in most cases is not economic.
From a management accounting perspective, a high number and value of spare parts become obsolete and redundant prompting high write-off rate every financial year. It is therefore critical to take stock whether your spare parts management systems are adequate.
Nyasha Chizu is a fellow of The Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: [email protected]
