Professional Documents
Culture Documents
Aditi Wahi
(15P063)
Samaksh
Chhabra (15P104)
Abstract
This study proposes a decision-making framework for the
management of spare parts inventory in capital-intensive
industries. This chapter aims to introduce the study by providing
context to the research problem and an overview of the research
process. It includes background to the research problem, an
introduction to fundamental topics and the objectives of the
research study. Finally, the chapter concludes with the research
design, methodology and thesis outline.
Index :
1. Introduction:
4
2. Background:
4
3. Problem
7
4. Approach:
8
5. Just
16
6. Emerging
17
Statement:
in
Time
Technology
Inventory:
RFID:
1.Introduction
Inventory optimization is the process of scientifically determining the right
inventory levels across the supply chain. It drives greater profitability
through lower inventories, better fill rates, and ultimately a more satisfied
customer.
The following 4 factors have contributed to the growth of inventory
optimization in the past decade:
The
The
The
The
2. Background
Spare parts play a significant role in organizations. The need for spare
parts arises whenever components fail, require replacement or repair. This
study is concerned with spare parts in capital-intensive industries. In this
regard, a spare part is considered to be a duplicate component used for
maintenance purposes or to replace a damaged part of a machine.
Effective management of spare parts inventory is essential in an
increasingly competitive business environment. In todays society,
operational effectiveness is of high importance and consequently there is
an emphasis on reduced operating costs and higher asset utilization.
Spare Parts Management (SPM) affects the operating cost of a company,
because higher stock levels lead to higher inventory costs. The availability
of parts has an effect on asset utilization as it influences the idle time of a
machine. Spare parts constitute a large portion of total inventory in
manufacturing companies.
The typical inventory system consists of different types of inventory to
fulfil various needs. Inventory is often categorized into finished goods,
4
PAM
SCM
Inventory
Manageme
nt
Maintenan
ce
SPM
3. Problem statement
Managers of spare parts are faced with a magnitude of decisions on a
dailybasis. The common theme amongst these decisions can be
summarized inthe following questions: which items should be bought, how
many shouldbe bought and when should they be bought? Decision-making
in the context of production planning and inventory management is a
problem of coping with large numbers while taking into considerationa
diversity of factors. In todays harsh business environment, managers and
organizations are looking for structured andlogical decision-making
processes that depend on evidence rather than relyingon mere intuition
and personal experience.
The objective of inventory management is to find the optimal stock level
toachieve a desired service level at a minimum cost. This results in tradeoffdecisions between risk and cost. In practice fewcompanies adopt
structural, factual and quantitative approaches to managespare parts.
Therefore, there is a need for a tool to assist structured
decisionmakingand provide quantitative support for trade-off decisions in
SPM.
The spare parts portfolio is diverse and vast. Different industries and
companieswithin industries have different types of spare parts with
varying characteristics.Furthermore, even within one company, parts vary
in cost, criticality,purpose and demand. Different spare parts therefore
require different managementapproaches and there is no single solution
to the spare parts issue. In thepursuit of a potential solution to the general
spare parts issue, it is thereforebeneficial to focus on the decision-making
process itself rather than a singlesolution to one problem. In this regard,
there is a need for practical guidelines to supplement theoretical modelsin
order to increase the adoption of SPM theories in practice. Thus, there isa
7
4. Approach
The focus would be on applying the lean sigma management principles,
Just in Time (JIT) techniques and using various frameworks like value
stream mapping for inventory management and logistics cost reduction.
customer
Measure: Map the current process to collect data
Analyze: Investigate and identify what causes the problem
Improve: Implement a fix that will solve the problem
Control: Sustain the improved result
Lean Six Sigma methods have been shown to be very effective in finding
and eliminating root causes, and thus preventing arbitrary year-end
reductions in inventory investment.
An analysis of excess and obsolete inventory often shows that its major
root causes are associated with long lead times, poor forecasting
accuracy, quality problems or design obsolescence. However, these
higher-level causes can be successively broken down into lower-level root
causes as shown in the figure.2 below.
Inventory Optimisation
Figure.2
As the figure suggests, from an inventory investment perspective, a long
lead time may be caused, in part, by large lot sizes. For example, if the
actual lead time or order cycle time is 30 days, but the required lot size
for purchase is 90 days of supply (DOS), then this lot size drives a higher
average inventory level than lead time by itself. In this case, the average
on-hand inventory (neglecting a safety-stock calculation) increases from
15 to 45 DOS assuming a constant usage rate. Of course, the actual
reasons for large lot sizes would have to be investigated by a Lean Six
Sigma improvement team. The root causes of long lead times also could
be due to complicated processes having numerous rework loops and non9
MA
MACHI
Obsolet
e
Lack of
Knowledge
Unreliabl
e
Insufficient
Manpower
Experien
ce
Incorrect Asset
Documentati
Incorrect
METH
Improper
Inventory
Incorrect
Inventory
Modelling
Damag
ed
Incorrect
Material
Classification
Improper
Material
Storage
Incorrect
Specifications
MATERI
10
11
incorrect
It takes far too long to get through the whole inventory
management process
It is simply impossible to review all the recommended order
quantities prior to placing the orders and often items that should
not be ordered are being ordered. This leads to excess stock
Applying the same Target Fulfillment Rate and Safety Stock to all
Reviewing the above, the benefits of classification may seem obvious but
what is the real purpose of Classification?
12
A inventory accounts for about 20% of the items and 80% of the
dollar usage
B inventory accounts for about 30% of the items and 15% of the
dollar usage
C inventory accounts for about 50% of the items and 5% of the
dollar usage
a) Lead time i.e. difference between the ordering time and time of
receipt of material
b) Number of equipments installed in various plants/units
c) Failure rate of equipment spare including the process line
conditions
d) Criticality of instrument or parent equipment
e) Criticality of process line in terms of process requirements,
downtime, monetary loss incurred due to failure of material
4.2.5 Incorrect Depreciation:
Sometimes the equipments are registered in the system at their book
value, i.e. their value when they were procured. This shows greater
inventory value. Proper valuation of inventory taking into account the
depreciation needs to be done so as to find out the actual inventory value.
Also the value of rotables, i.e. the equipments reused after repair, should
be corrected in the system. Apart from showing the correct value of
inventory, calculating proper depreciated value also provides information
regarding the equipment quality and remaining equipment life.
4.2.6 Improper Material Storage:
Improper material storage leads to deterioration and damage of
equipments/raw materials/consumables. This increases inspection costs
and reordering costs. Also, locating material at the time of emergency
becomes difficult and may lead to downtime and/or monetary losses.
4.2.7Imprecise Documentation:
Documentation is an important part of maintaining right inventory. If some
material quantity/material location is not updated in the system, the
material becomes untraceable and thus unaccounted for. The inventory
which is not present according to the system is not being used by the
plants and hence its usability vanishes but it is using extra storage space.
4.2.8 Damage:
Material may get damaged due to improper loading, unloading and
storage conditions. It is important to inspect material during unloading so
as to reduce the storage costs and storage space. Material damage due to
improper storage conditions makes inventory unusable and also increases
inspection costs.
4.2.9Incorrect Specifications:
When proper specifications of the materials are not updated in the
documents, visibility of the materials is reduced. Especially when many
SKUs have slight differences in specifications (For example Gaskets,
fittings, pipes, screws etc) it may increase confusion. This also increases
binning/inspection/locating costs thus wasting time of plant personnel.
This also leads to a lot of rework on documentation.
4.2.10Lack of Knowledge:
14
15
Snapshots
16
Reducing Cost
Improving Quality
Improving Performance
Improving Delivery
Adding Flexibility
Increase innovativeness
It is a philosophy of manufacturing based on planned elimination of all
waste and continuous improvement of productivity. It encompasses the
successful execution of all manufacturing activities required to produce a
final product, from design engineering to delivery and including all stages
of conversion from raw material onward. The primary elements include
having only the required inventory when needed; to improve quality to
zero defects; to reduce lead time by reducing setup times, queue lengths
and lot sizes; to incrementally revise the operations themselves; and to
accomplish these things at minimum cost.
When the JIT principles are implemented successfully, significant
competitive advantages are realized. JIT principles can be applied to all
parts of an organization:
order taking, purchasing, operations,
distribution, sales, accounting, design, etc.
Elimination of Waste: JIT usually indentifies seven prominent types of
waste to be eliminated:
Transportation of Waste
Proessing Waste
Inventory Waste
Waste of Motion
19
Consider things like racking and aisle placement, bin ranking and
numbering (for primary and secondary storage areas), and labelling
the bins with barcode labels
21
Thank You
22