Thoughts on Spare Busses and Spare Parts

 

The Covid19 pandemic has placed unusual stress on public transit agencies. This stress forces agencies to look again at their processes and equipment.

This blog focuses on bus systems and their practices for spare parts management. However, there are lessons here for other types of public transit, including rail and light rail.

Back in 1995, the Transportation Research Board (TRB) of the National Research Council published a report that still has relevance. System-Specific Spare Bus Ratios: A Synthesis of Transit Practice stated

The purpose of this study was to document and examine the critical site-specific variables that affect the number of spare vehicles that bus systems need to maintain maximum service requirements. … Although transit managers generally acknowledged that right-sizing the fleet actually improves operations and lowers cost, many reported difficulties in achieving and consistently maintaining a 20 percent spare ratio as recommended by FTA… The respondents to the survey advocated that more emphasis be placed on developing improved and innovative bus maintenance techniques, which would assist them in minimizing downtime and improving vehicle availability, ultimately leading to reduced spare vehicles and labor and material costs.

Grossly simplified guidelines like “keep 20% spare buses” are easy to understand and measure but mask more detailed tactics that can provide more tailored policies. If operational reliability can be improved for each bus, then fewer spares are needed.

One way to keep each bus up and running more often is to improve the management of inventories of spare parts. Here is where modern supply chain management can make a significant contribution. The TRB noted this in their report:

Many agencies have been successful in limiting reliance on excess spare vehicles. Those transit officials agree that several factors and initiatives have led to their success and are critical to the success of any program [including] … Effective use of advanced technology to manage critical maintenance functions, including the orderly and timely replacement of parts… Failure to have available parts and other components when they are needed will adversely affect any maintenance program. As long as managers are cognizant of the issues and vigilant about what tools are available to them, the probability of buses [being] ‘out for no stock’ will greatly diminish.”

Effective inventory management requires a balance between “having enough” and “having too much.” What modern software can do is make visible the tradeoff between these two goals so that transit managers can make fact-based decisions about spare parts inventories.

There are enough complications in finding the right balance to require moving beyond simple rules of thumb such as “keep ten days’ worth of demand on hand” or “reorder when you are down to five units in stock.” Factors that drive these decisions include both the average demand for a part, the volatility of that demand, the average replenishment lead time (which can be a problem when the part arrives by slow boat from Germany), the variability in lead time, and several cost factors: holding costs, ordering costs, and shortage costs (e.g., lost fares).

Innovative supply chain analytics uses advanced probabilistic forecasting and stochastic optimization methods to manage these complexities and provide greater parts availability at lower cost. For instance, Minnesota’s Metro Transit documented a 4x increase in return on investment in the first six months of implementing a new system. To read more about how public transit agencies are exploiting innovative supply chain analytics, see:

 

 

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You may remember the story of Goldilocks from your long-ago youth. Sometimes the porridge was too hot, sometimes it was too cold, but just once it was just right. Now that we are adults, we can translate that fairy tale into a professional principle for inventory planning: There can be too little or too much inventory, and there is some Goldilocks level that is “just right.” This blog is about finding that sweet spot.

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Drive Operational Efficiency and Boost Operational Excellence

Smart Software is pleased to introduce our new series of educational webinars, offered exclusively for Epicor Users. Greg Hartunian, CEO at Smart Software, will lead 45-minute webinar focusing on specific approaches to demand forecasting and inventory planning that will enable you to increase profitability, improve service levels, and reduce inventory holding costs. The presentation will outline the challenges associated with traditional inventory planning and demand forecasting processes and how new probabilistic forecasting and optimization methods will make a big difference to your bottom line. Finally, the presentation will conclude by showing how to increase profitability with software-enhanced inventory planning processes in a Live Demo.

WEBINAR REGISTRATION FORM

 

Please register to attend the webinar. If you are interested but not cannot attend, please register anyway – we will record our session and will send you a link to the replay.

We hope you will be able to join us!

 

SmartForecasts and Smart IP&O are registered trademarks of Smart Software, Inc.  All other trademarks are the property of their respective owners.


For more information, please contact Smart Software,Inc., Four Hill Road, Belmont, MA 02478.
Phone: 1-800-SMART-99 (800-762-7899); E-mail: info@smartcorp.com

 

January 2022: Maximize service levels and minimize inventory costs

Smart Software specializes in helping spares carrying operations companies optimize their inventory. For example, a leading Electric Utility customer implemented Smart IP&O in just 90 days and reduced inventory by $9,000,000 while maintaining service levels.

Our Smart IP&O platform includes a patented probabilistic forecasting core engineered specifically for intermittently demanded spare parts. Please join our webinar featuring Greg Hartunian, CEO of Smart Software, who will show how to plan optimal inventory levels and purchase quantities for thousands of items when demand is intermittent, constantly changing, or affected by unexpected events. This webinar is an excellent opportunity to learn how to reduce stock-outs and inventory costs by leveraging data-driven decisions that identify the financial trade-offs associated with changes in demand, lead times, service level targets, and costs.

WEBINAR REGISTRATION FORM

 

Please register to attend the webinar. If you are interested but not cannot attend, please register anyway – we will record our session and will send you a link to the replay.

We hope you will be able to join us!

 

SmartForecasts and Smart IP&O are registered trademarks of Smart Software, Inc.  All other trademarks are the property of their respective owners.


For more information, please contact Smart Software,Inc., Four Hill Road, Belmont, MA 02478.
Phone: 1-800-SMART-99 (800-762-7899); E-mail: info@smartcorp.com

 

Inventory Planning Becomes More Interesting

The Smart Forecaster

 Pursuing best practices in demand planning,

forecasting and inventory optimization

Taiichi Ohno of Toyota is credited with inventing Just-In-Time (JIT) manufacturing in the 1950s. JIT ensures that a manufacturer produces only what is needed, only when required, and only in the necessary amount. That innovation has since had major impacts, some good, some less so.

A recent New York Times article “How the World Ran out of Everything” describes some of the “less so” impacts.  For example, JIT has kept inventory costs very low improving return on assets.  This in turn is rewarded by Wall Street, so many companies have spent the last few decades reducing their inventories dramatically. Focused as they were on financials, many companies ignored the risks inherent in reducing inventories to the point that “lean” began to border on “emaciated.” Combined with increased globalization and new risks of supply interruption, stock-outs have abounded.

Some industries have gone too far, leaving them exposed to disruption. In a competition to get to the lowest cost, companies have inadvertently concentrated their risk, been interrupted by shortages of raw materials or components, and sometimes forced to halt assembly lines. Wall Street does not look kindly on production halts.

We all know that random events have added to the problem. First among them has been the Covid pandemic. As the pandemic has hindered factory operations and spread disarray in global shipping, many economies worldwide have been tormented by shortages of an immense range of goods — from computer chips to lumber to clothing.

The damage is compounded when more unexpected things go wrong. The Suez Canal Blockage is a prime example, obstructing the main trade route between Europe and Asia. Recently, cyberattacks have added another layer of disruption.

The reaction creates its own problems, just as the cyberattack on the Colonial Pipeline created gas shortages through panic buying. Suppliers start filling orders more slowly than usual. Manufacturers and distributors reverse course and increase inventories and diversify their suppliers to avoid future stockouts. Simply expanding warehouses may not deliver the solution, and the need to determine how much inventory to keep is more urgent every day.Manager In Warehouse With Inventory Management Software

So how can you execute a real-world plan for JIT inventory amidst all this risk and uncertainty? The foundation of your response is your corporate data. Uncertainty has two sources: supply and demand. You need the facts for both.

On the supply side, exploit the data you have on recent supplier lead times, which reflect the current turbulence. Don’t use average values when you can use probability distributions that reflect the full range of contingencies. Consider this comparison. Supplier A is now reliably filling orders in exactly 10 days. Supplier B also averages 10 days but does with a 78%/22% mix of 7 and 21 days. Both A and B have an average replenishment delay of 10 days, but the operational results they provide will be very different. You can only recognize this if you use probability models of inventory performance.

On the demand side, similar considerations apply. First, recognize that there may have been a major shift in the character of item demand (statisticians call this a “regime change”), so purge from your analysis any data that represent the “good old days.” Then, again, stop thinking in terms of averages. While the average demand is important, it is not a sufficient descriptor of the problem you face. Equally important is the volatility of demand. Volatility is the reason you keep inventory in the first place. If demand were completely predictable, you would have neither stockouts nor excess inventory. Just as you need to estimate the full probability distribution of replenishment lead times, you need the full distribution of demand values.

Once you understand the range of variability in both supply and demand, probabilistic forecasting will allow you to account for disruptions and unusual events. Software will convert your data on demand and lead times into huge numbers of scenarios representing how your next planning period might play out. Given those scenarios, the software can determine how best to meet your goals for such metrics as inventory costs and stockout rates. Using solutions such as Smart Inventory Optimization , you will confidently plan based on your targeted stockout risk with minimal inventory carrying cost. You may also consider letting the solution prescribe optimal service level targets by assessing the costs of additional inventory vs. stockout cost.

In inventory planning, as in science, we cannot escape the reality of uncertainty and the impact of unusual events. We must plan accordingly: using inventory optimization software helps you identify the least-cost service level. This creates a coherent, company-wide effort that combines visibility into current operations with mathematically correct assessments of future risks and conditions.

Inventory planning has become more “interesting” and requires a greater degree of risk awareness and agility. The right software can help.

 

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Call an Audible to Proactively Counter Supply Chain Noise

Call an Audible to Proactively Counter Supply Chain Noise

You know the situation: You work out the best way to manage each inventory item by computing the proper reorder points and replenishment targets, then average demand increases or decreases, or demand volatility changes, or suppliers’ lead times change, or your own costs change.

Four Ways to Optimize Inventory

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Top 3 Most Common Inventory Control Policies

Top 3 Most Common Inventory Control Policies

To make the right decision, you’ll need to know how demand forecasting supports inventory management, choice of which policy to use, and calculation of the inputs that drive these policies.The process of ordering replenishment stock is sufficiently expensive and cumbersome that you also want to minimize the number of purchase orders you must generate.

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    Belmont, MA., 2021Smart Software, Inc. provider of industry-leading demand forecasting, planning, and inventory optimization solutions, today announced its selection, purchase, and implementation of its flagship product, Smart IP&O, by a major US electric utility.  The platform is now utilized to plan over 250,000 spare parts valued at over $500,000,000 across the Utility’s multi-echelon distribution network.  Smart IP&O was implemented in just 90 days and has been credited for reducing inventory by $9 million while maintaining service levels within its first six months of operation.

    The implementation of Smart IP&O is part of the Utility’s Strategic Supply Chain Optimization (SCO) initiative to replace twenty-year-old legacy software. Subsequent phases of the Smart Software implementation will integrate Smart IP&O to their IBM Maximo Asset Management system.

    Key to the selection and success of the project to-date is Smart Software’s proven track record planning intermittent demand that is prevalent on spare and service parts.  Intermittent or lumpy demand is characterized by frequent periods of zero demand interspersed with large spikes of non-zero demand that seemingly occur at random.  The Utility estimates that over 80% of its parts have intermittent demand.  Smart Software leverages probabilistic forecasting that creates thousands of possible future outcomes of demand and lead times. The technology’s proven ability to accurately forecast the required inventory to achieve the high levels of service the Utility requires and to do so at scale were critical differentiators.

    Implementation was accomplished within 90 days of project start.  Over the ensuing six months, Smart IP&O enabled the adjustment of stocking parameters for several thousand items, resulting in inventory reductions of $9.0 million while sustaining target service levels.  Significant additional savings – and improvement in service levels for critical spares – are anticipated in the coming year as stocks for additional facilities are brought into the system.

    “We have had many very strong successes helping customers in asset-intensive industries optimize their parts inventory,” said Greg Hartunian, CEO of Smart Software.  “Combined with the Utility’s support from the top-down, hands-on involvement from IT, and user enthusiasm to embrace a new approach, we had a great recipe for success.  We look forward to building on our early success to deliver even more value together.”

    About Smart Software, Inc.
    Founded in 1981, Smart Software, Inc. is a leader in providing businesses with enterprise-wide demand forecasting, planning, and inventory optimization solutions.  Smart Inventory Planning & Optimization is a multi-tenant web platform that gives demand planners the tools to handle sales seasonality, promotions, new and aging products, multi-dimensional hierarchies, and intermittently demanded service parts and capital goods items.  The solution provides inventory managers with accurate estimates of the optimal inventory and safety stock required to meet future orders and achieve desired service levels.  Smart Software is headquartered in Belmont, Massachusetts, and can be found at www.smartcorp.com.

     

    SmartForecasts and Smart IP&O are registered trademarks of Smart Software, Inc.  All other trademarks are the property of their respective owners.


    For more information, please contact Smart Software,Inc., Four Hill Road, Belmont, MA 02478.
    Phone: 1-800-SMART-99 (800-762-7899); E-mail: info@smartcorp.com