After-sales service of industrial products and components is a complex yet profitable driver for customer delight and loyalty. Due to the unique nature of spare parts and the dynamic environment in which after-sales service operates, inventory management of spare parts is relatively challenging and distinct from that of other material. High spares availability accompanied by low spares inventory are necessary to ensure maximum uptime of equipment at minimum costs.
How Spare Parts Are Different?
The following factors differentiate spare parts from other types of material:
• Shortage Impact:
Shortage of spare parts impacts equipment uptime and may have a cascading impact on production schedule and cycle time.
• Product Life Cycle:
Inventory of spare parts for new products and discontinued products needs to be planned based on non-traditional approaches, industry expertise and technical projections.
• Spare Parts Peculiarities & Life Cycle:
Tracking of substitutes, stocking of maintenance-only (i.e., nonproduction) material and managing obsolescence are important for effective inventory management of spare parts.
• Demand & Supply:
Deviation of actual maintenance material requirement from the maintenance Bill of Material (BOM), lower predictability of demand, unavailability of market research & forecasts and the menace of spurious parts can impact the accuracy of demand-supply calculations for spare parts.
Inventory Management Of Spare Parts: A Classification-Based Approach
A variety of criteria need to be considered for inventory planning and control of spare parts. Given below are a few:
Based on their origin or source, spare parts are classified as manufactured and purchased. Original Equipment Manufacturers (OEMs) usually have better control over parts that are manufactured inhouse as compared to those that are procured from external sources.
From the perspective of their criticality for safe and effective functioning of equipment, spare parts are classified as vital, essential, and desirable necessitating high, medium, and low inventory levels, respectively.
• Lead Time:
Based on the lead time required for
making them available, parts are classified as long, medium, and short lead time items that need high, medium, and low inventory levels, respectively.
• Historical Consumption:
Consumption is commonly expressed in terms of quantity (fast moving, average consumption, and slow moving) and value (high turnover, medium turnover, and low turnover).
Unit cost is a key factor in the determination of the degree of monitoring and control required for inventory of spare parts. So they are classified as high cost, medium cost, and low cost.
Key Aspects Of Effective Spare Parts Management
• Stocking Criteria:
This consists of guidelines on when to stock and when not to stock a part.
• Stock Levels:
This decides how much to stock, minimum and maximum stock levels and reorder quantities.
This includes impact analysis and root cause analysis of stockouts, followed by implementation of corrective measures.
• Stagnant Stocks:
This includes root cause analysis, implementation of corrective measures and approach for reduction of existing stagnant stocks.
• Stock Review:
This encompasses verification of correctness of stock levels, identification of potential stockouts & stagnant stocks, and corrective actions for improvement of inventory composition, turnover, and availability.
Current Trends In Management Of Spare Parts
• Dealers & Channel Partners:
High spares availability accompanied by low spares inventory are necessary to ensure maximum uptime of equipment at minimum costs
Niranjan Ajgaonkar, Global Head - Enterprise Asset Management & Supply Chain Management, Ramco Systems
Increased collaboration with dealers and channel partners to achieve lower inventory carrying cost, higher market penetration, lower processing costs and faster collection of receivables.
• Drop Shipments:
Direct delivery of goods from suppliers of an OEM to its customers, dealers, or channel partners for shorter supply chain cycle time, lower transportation & handling costs, and lower inventory carrying cost.
• Profit Center:
Transformation of after-sales service into a profit center that can play a critical part in boosting bottom-line growth and long-term profitability.
• Marketing of Spare Parts & Services:
Offerings such as comprehensive maintenance contracts, extended warranty, health checks, and refurbishing services.
After-sales service now represents the single largest opportunity for revenue and profit growth for companies involved in manufacturing of industrial products. It provides an opportunity to improve margins, offset the commoditization of products, and differentiate a product in the marketplace. As manufacturers strive to achieve customer delight and loyalty, effective and efficient after-sales service is very essential. Spare parts management is the central component of a complete strategic service management process that is used to ensure that right material and resources are at the right place at the right time. Given the profitability of the spare parts business, manufacturers are looking towards the spare parts management function as a vital part of their operations, both from an internal operational perspective as well as from the service perspective.