# Critical Spare Parts Calculator

## Should you keep a spare-part in stock?

 Spare Part Downtime cost per hour if the part is unavailable Downtime if the spare part is available in stock (hours) Downtime if the spare part is not available in stock (hours) Expected remaining life time of the machinery (years) Estimated failure frequency (breakdowns per year) Inventory interest (including cost for storeroom, depreciation, etc.) % Cost of the spare part

## Explanation

If you do not have that critical spare part when you need it, you may be in big trouble. On the other hand, it is impossible to keep an extra factory in the storeroom. We do not know what the future will bring, but there is an analytical way to minimize the expected costs.

Use this form to calculate the costs whether or not you buy and keep the critical spares. The calculation is based on statistical methods and is used to optimize your maintenance stores. Enter your figures and estimations, and you will be presented with a buy, or not buy, recommendation.

For the calculation we need to estimate downtime costs, the failure frequency, and the lifetime of the machinery where it will be used.

## An Introduction to Maintenance Storeroom Management

Maintenance storeroom management is the business discipline of managing the storage of maintenance items. This has been compared to operating a corner store for the factory.

The inventory of maintenance items includes all the replacement parts for machines, for tools, and for company-supplied consumable employee equipment such as safety glasses. This category excludes items used in manufacturing, such as washers or bolts. This category includes consumable items for cleaning or safety, such as solvents.

Maintenance storeroom management has three major goals:

• To have the item that is needed
• To supply that item quickly when it is needed
• To control the overall cost of keeping items in stock

As an example, suppose that a machine saw's blade needs to be replaced about twice a year, but only when it "fails" (rather than on a pre-emptive maintenance schedule). That machine's production will stop until the blade is replaced. If it is out of stock, there will be a significant delay, even if the replacement can be purchased at a nearby hardware store. If a replacement blade is listed in the inventory, but misplaced, there is still a delay as one or more employees search for the item. Suppose the response to this "crisis" is that a dozen blades are purchased, with some stored near the machine and more in the storeroom. That expense represents a six year supply; it is likely that some of those blades will be misplaced in the coming years, completely wasting the purchase.

• Purchasing Guildelines for Maintenance Storeroom Management
• Stock-Keeping Guildelines for Maintenance Storeroom Management
• Maintenance Storeroom Management Guildelines for Releasing Stock

One key recommendation is to consider a computerized inventory management system for the maintenance supplies. This should integrate the purchasing, storage and stock-release functions so the system tracks pending orders, expense authorizations, where items are stored, and to whom the items are released.

Another recommendation is to develop a reliability-centered maintenance program (RCM) or computer-managed maintenance system (CMMS). In either case, the advantage is that most maintenance is scheduled; therefore the demand for many maintenance items will be known in advance. Ensure that the storeroom workers are given sufficient advance notice of the maintenance schedule that they can pick the items and prepare maintenance "shopping carts" for each machine or area. This smoothes out the workload for the storeroom staff, and should lead to fewer errors.

## Purchasing Guidelines for Maintenance Storeroom Management

This is usually the area where storeroom managers believe they do well…and often do.

If you have not already done so, consider a kanban approach: let demand pull your re-order process. While this usually is applied to parts and processes in manufacturing production, it can be applied to maintenance parts.

The brief idea is to order new stock when your remaining inventory drops to the point where the replacements will arrive just before you would report "out of stock" to the next request. Kanban requires a good understanding of the steady demand for each item, and of the lead time between your order and its delivery. The benefit is that kanban minimizes inventory levels while maintaining enough supply to meet demand.

Read the related article, "Kanban: A Card to Pull Production" for a more complete view from the manufacturing viewpoint.

### Deciding Whether to Stock a Critical Spare Part

A financially-driven decision on whether or not to stock a particular spare part compares the cost of being out of stock against the cost of keeping a replacement part in inventory. Once a machine breaks down and the replacement part is required, there are two possibilities: the part is in stock, or it has to be purchased. The extra cost for being out-of-stock is the hourly cost of downtime, multiplied by the extra time required to purchase the item rather than taking it out of inventory. On the other hand, the holding cost for having the part in stock includes the interest on the pre-paid item, storage costs, and depreciation if the part becomes obsolete before it is needed.

Obviously this calculation is important for expensive but critical spare parts. An informed decision requires knowing the cost of downtime, how often the part must be replaced per year, as well as the time it takes to purchase the new part.

It is overkill to run through this calculation for inexpensive or easily-stocked parts.

See the our calculator, a tool that helps to perform the above calculation.

## Stock-Keeping Guidelines for Maintenance Storeroom Management

As noted earlier, it is useless to have an item in stock if it cannot be found. Again, most storeroom managers ensure that they have a system for keeping track of where items are stored. This is vital if time has any value to the business.

The "5S" program's second step is seiton, meaning "set in order". This is a best practice in any workplace. It puts the most-frequently used items nearest the point of use (in easy reach), the most-rarely used items into storage areas, and intermediate-use items in convenient places within sight of the point of use.

One might adapt the seiton methodology to the maintenance storeroom. Keep the items with the highest turnover in the most convenient locations. Above all, keep the items where they should be stored, rather than haphazardly.

Read the related article, 5S System for a more complete view of the "5S" program from the manufacturing viewpoint.

## Maintenance Storeroom Management Guidelines for Releasing Stock

This is often the downfall for maintenance storeroom managers. Front-line employees or production managers almost certainly will be in a rush to acquire items, and will not be inclined to fill in the paperwork.

However, a lack of control over stock withdrawal is similar to a self-serve store with no cash register. Items that might be taken for personal use, such as safety glasses, solvents or drill bits, might easily find their way to employees' homes. Even with honest employees, inventory management and re-ordering will be compromised without some tracking system.

Worse yet, an increase in the consumption of maintenance items may be the symptom of a significant problem with a machine or process. This might be overlooked by front-line workers if the problem builds slowly, but could be visible as an increase in usage even before it becomes an out-of-stock or over-spending issue.

How can the process of withdrawing items from the maintenance storeroom be made quicker and easier, but also with increased accuracy of record-keeping?

The best labour-saving approach is to use either a bar-code scanner or RFID (Radio Frequency IDentification) devices to log items as they are removed from inventory. This should, of course, be integrated into the computerized maintenance inventory program.

To track which department or shop withdrew the item, the best time-saver is to use the employee's computer-readable identification card. The withdrawal is then charged to that employee's department.

## Conclusion

A factory's overall performance relies heavily on how well its maintenance storerooms are managed.  The stock of spare parts may grow over time. When the machine for which they are intended is replaced, the newly obsolete items might remain on the shelves. Items with a limited shelf life need to be replaced.

It can be difficult to argue to reduce this inventory, since an out-of-stock situation can bring an assembly process to a halt.

The requirement to balance keeping the parts in inventory with the need to control spending is the reason it is important to have a clear, rational, and well-understood policy. The maintenance storeroom  manager needs to know the facts regarding costs, the frequency of the need for specific critical expensive parts and the time required for purchasing them in order to keep that balance.

By Oskar Olofsson