MRO Q&A: Justifying Critical Spare Parts

Jan. 15, 2015
A reader would like to know how to justify expensive parts as critical spares.

A Reader Asks...

I work in a new food manufacturing facility and am trying to set up my parts inventory. I am getting a lot of push back on carrying expensive parts as critical spares. Any thoughts on how to justify these?

Our experts' answer...

On many occasions you have to walk a fine line between being a good steward of your company's funds and maximizing the operating efficiency of your facility. You don't and shouldn't be the only one walking that line. To do an adequate job you must involve several people. If you are making the determination of what parts are critical on your own, this might be the cause of you getting that push back.

The definition I use for a critical part is one that will cost you more if it fails and don't have one on hand. That being said there are several factors that may enter into this decision-making process. They are lead time, part cost, flexibility of production scheduling department, inventory levels of vendors and the overall impact on the operation if this part fails. I think this issue is best portrayed by the use of several examples to illustrate the work that needs to be done in order to make the most prudent decision for the company.

Scenario 1: For example; you have a 50 hp motor that runs an ammonia compressor. The lead time is eight weeks. You check the original equipment manufacturer (OEM) and they tell you they have a min/max level of one-third and their usage for the year has been two. You check with the engineering guys and they tell you they only need all their compressors running for one month during the summer. You check with the production scheduling department and they carry a finished goods inventory of three weeks. In this case, this part should not be considered critical.

Scenario 2: You have a 50 hp motor that runs a custom-made packaging machine that is capable of running several different package configurations. It is a specially wound motor due to the intermittent motion of the machine. The OEM does not carry any of these in stock. You call the motor rewind shop and they tell you that if it fails they could do a repair on it in three days on overtime. You check with the production scheduling department and after looking at all the products that run on this machine they find the worst case scenario is that they have one week of inventory and they have another line they could run in its place, if needed, to produce a different product. In this case, this part would not be a critical spare.

Scenario 3: You have a 50 hp motor that runs a meat chopper. The chopper was manufactured in Germany. The OEM does not carry a standard inventory but may have one on hand if they are building another chopper. Otherwise, the lead time is 12 weeks. The specifications on the motor are proprietary and you do not have the documentation to do repairs locally. This chopper provides meat for seven different production lines. You check with production scheduling and after considering all the products affected, they have a minimum inventory of three weeks. You get with accounting and determine what the product outage cost would be for the nine weeks you would not be able to produce product. Even if the cost is less than the carrying cost of having a spare, sales is afraid of losing market share if they don't have the product on the shelves.

So you go back to the OEM and ask for a list of other companies that have this same chopper in your area. You contact one of them (not a direct competitor) and mutually agree to buy one critical spare and share it between each other. It now becomes a critical spare but for half the price.

When you go through this process, what you are doing is building consensus and developing a stronger team environment at the same time. You have involved many parts of the organization because they all have a stake in the outcome and, after all, you all have skin in the game, not just the MRO buyer.

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