When deciding on the right stocking parameters for spare and replacement parts, it is important to distinguish between consumable and repairable parts. These differences are often overlooked by inventory planning software and can result in incorrect estimates of what to stock. Different approaches are required when planning for consumables vs. repairables.
First, let’s define these two types of spare parts.
- Consumable parts are items contained within the equipment which are replaced rather than repaired when they fail. Examples of consumable parts include batteries, oil filters, screws, and brake pads. Consumable parts tend to be lower-cost parts for which replacement is cheaper than repair or repair may not be possible.
- Repairable parts are parts that are capable of being repaired and returned to service after failing due to causes like wear and tear, damage, or corrosion. Repairable parts tend to be more expensive than consumable parts, so repair is usually preferable to replacement. Examples of repairable parts include traction motors in rail cars, jet engines, and copy machines.
Traditional planning methods fail to do the job
Traditional planning methods are not well-adapted to deal with the randomness in both the demand side and the supply side of MRO operations.
Planning for consumable parts requires calculation of inventory control parameters (such as reorder points and order quantities, min and max levels, and safety stocks). Planning to manage repairable parts requires calculation of the right number of spares. In both cases, the analysis must be based on probability models of the random usage of consumables or the random breakdown of repairables. For over 90% of parts, this random demand is “intermittent” (sometimes called “lumpy” or “anything but normally distributed”). Traditional forecasting methods were not developed to deal with intermittent demand. Relying on traditional methods leads to costly planning mistakes. For consumables, this means avoidable stockouts, excess carrying costs, and increased inventory obsolescence. For repairables, this means excessive equipment downtime and the attendant costs from unreliable performance and disruption of operations.
Planning for consumables must take account of randomness in replenishment lead times from suppliers. Planning for repairables must account for randomness in repair and return processes, whether provided internally or contracted out. Planners managing these items often ignore exploitable company data. Instead, they may cross their fingers and hope everything works out, or they may call on gut instinct to “call audibles” and then hope everything works out. Hoping and guessing cannot beat proper probability modeling. It wastes millions annually in unneeded capital investments and avoidable equipment downtime.
Smart IP&O uses a unique empirical probabilistic forecasting approach that is engineered for intermittent demand. For consumable parts, our patented and APICS award winning method rapidly generates tens of thousands of demand scenarios without relying on the assumptions about the nature of demand distributions implicit in traditional forecasting methods. The result is highly accurate estimates of safety stock, reorder points, and service levels, which leads to higher service levels and lower inventory costs. For repairable parts, Smart’s Repair and Return Module accurately simulates the processes of item breakdown and repair. It predicts downtime, service levels, and inventory costs associated with the current rotating spare pool. Planners will know how many spares to stock to achieve short- and long-term service level requirements and, in operational settings, whether to wait for repairs to be completed and returned to service or to purchase additional spares from suppliers, avoiding unnecessary buying and equipment downtime.
Contact us to learn more how this functionality has helped our customers in the MRO, Field Service, Utility, Mining, and Public Transportation sectors to optimize their inventory. You can also download the our Whitepaper here.
White Paper: What you Need to know about Forecasting and Planning Service Parts
This paper describes Smart Software’s patented methodology for forecasting demand, safety stocks, and reorder points on items such as service parts and components with intermittent demand, and provides several examples of customer success.