What Parts Should we Stock?

1. Stocking Policy: What Parts to Stock and Where To Stock Them
Nov 11, 2014 Page 1
From a purelyinventorystandpoint,itischeapertohave as few stockeditemsaspossible. The
expectationsof the customerandthe competitionfromcompetitorswillultimatelydetermine the
“correct” inventorystockingpolicy.
At Sundstrand,the determinationof whatpartsto stock was suggested bythe airlinesthemselves via
theirtrade associationthe AirlineTransportAssociation(ATA). Perthe ATA guidelinesanitemshouldbe
consideredastockeditemif there have been“twoormore ordersby twoor more customerswithinthe
lastyear”. The ATA also requiredsupplierstoannuallypublishacatalogstatingwhichpartswere
“stockeditems”andwhatdelivery leadtimesthe airlinescouldexpect. ForSundstrand,those lead
timeswere 30 days inthe 1980s, butwere as low as 5 daysinthe 1990s.
Mr. D was incharge of determiningwhichitemswereinthe catalog. Because the ATA requireda90
day notificationforanychangestothe catalog,and because the new catalogwentintoeffectonJanuary
1st, the determinationof whichpartswere tobe inthe nextyear’scatalogwas done inAugust.The
criterionforinclusioninthatcatalog wasif an itemwasorderedtwice ormore inthe lastyear(Augthru
July). The twoorderscouldbe fromone customer,or more thanone customer.Thisanalysis didnot
includedSundstrand’s repairsites –whichwere treatedlike airline customersforpartsordering
purposes.
Mr. D was alsoresponsiblefordeterminingwhichitemswere stocked tosupportthe repaircenters.The
determinationof stockeditemswasdone monthly. All catalogitemsmustbe stockeditems,buta
stockeditemdoesnothave to be inthe catalog. The criterionfora stockeditemwasif an itemwas
orderedtwice ormore in the last12 months. This analysisincludedthe Sundstrandrepairsites andthe
airline orders.
The COOP systemusedbySundstrandallowedanitemtobe classifiedas“stock/non-stock”and,
independentof thatclassification,allowedanitemtobe classifiedas“catalog/non-catalog”. The
classificationof anitemas“catalog/non-catalog”onlyimpactedthe calculationof promiseddelivery
dates. I.e.Ontime shipmentsverseslate shipments.
The more importantkeywasthe stock/non-stockclassification. Itemsclassifiedas“stocked”itemswere
managedso as to have inventoryon-handatthe time an orderwasreceived. This,of course,meant
that Sundstrandhadto incurinventoryriskonthese stockeditems. Itemsclassifiedas“non-stocked”
were promisedfordeliveryat full lead time. Noinventory riskisincurredfornon-stockeditems. Itwas
Mr. D’sexperiencethat almostnocustomereverwaitedfull leadtime forparts. Almostall ordersfor
non-stockedpartswere eventuallyrequestedforexpediteddelivery. Consideringthis,aliberal stocking
policywasapplied. Historically,95%of items,lines,anddollarsorderedwere forstockeditems.
There were more stockeditemsthancatalogitems.Thiswas because the Sundstrandrepairsiteswere
treatedas customers,andMr. D neededtostock additional itemstosupportrepaircentersat“catalog”
type leadtimes. Mostly,these additionalitemswerenuts,bolts,andscrews - militarystandard part
numbersthatthe airlineswouldpurchase fromsomeone otherthanSundstrand. Shouldanairline order
one of these itemstheywouldbenefitfromthe “catalog”type leadtime,justlike arepaircenter. There
was noATA requirementtoputthese additional stockeditemsinthe catalog,sothey weren’t.

2. Stocking Policy: What Parts to Stock and Where To Stock Them
Nov 11, 2014 Page 2
At Sundstrand,once anitem waseithera stockeditemorinthe catalog,the criterionfor retainingthat
statuswas justone orderin the last twelve months,nottwo. To be removedasa stockedorcatalog
itema part musthave zero ordersinthe past year.
The determinationof wheretostockan itemisstraightforward:as few placesaspossible,hopefullyjust
one. This minimizesthe amountof safetystockrequiredtosupportthe targetedservicelevel foran
item. Sundstrand’s“main”spareswarehouseforanitemwasthe spares warehouse locatedinthe plant
where the enditemassembly&testwasdone. For example, Plant-6wasthe locationwhere IDGswere
assembled &testedandwhere the productionwarehousefor the itemsneededtoassemblean IDG was
located. Therefore,the spare partsneededtorepairanIDG were stockedinPlant-6.
WhenMr. D firststartedworkinginthe CustomerService InventoryPlanning GroupSundstrand had
onlyone plant where end productswere assembledandtested. These “enditems”were soldtothe
OEMs (Boeing,etc.) This plantwasnamed Plant-6,andis locatedinthe city of Rockford,IL. In addition
to the production & assemblystockrooms there wasalsoasparesstockroom,andalsoa repaircenter
witha repairparts warehouse. So,in1980, there was onlyone stockroom,locatedinPlant-6, from
whichspare parts were shipped.
In the 1980s Sundstrandmoveddifferent groupsof enditems fromPlant-6tootherbuildings withinthe
Rockfordarea. The fluidpumpingproductswere movedto Plant-1. The electroniccontrollerswentto
Plant-10. Each of these siteswasanislandinitself:eachassembledandtested endproducts,eachhad
a repaircenterand a repairwarehouse,andeachhada spareswarehouse. Withthe exceptionof afew
cheapitemssuchas nuts & boltsthere wasno overlapof partsusedin these different enditems. It
followsthenthatfromthe sparesprospective,anyspare partwas stockedinonlyone of those three
parallel locations. Commonitemswere stockedatonlyone location. Therefore,there wasnoincrease
insparesinventorydue tothe creationof these parallel distributionchannels.
Time passed. Sundstrandboughtseveral businesses andopenedadditional production&assembly
plantsinothercities. The business expandedfromjustthe Rockfordcampusto Lima Ohio,San Diego
and Phoenix.The basicstructure of the processdidnotchange. For any enditemthe assembly&test,
repaircenter,andspareswarehouse were all onthe same campus. Once again,there was noincrease
insparesinventorydue tothe expansionof the businessandthe creationof these paralleldistribution
channels,mostly.
The exceptionto thisrule wasforthe commonparts needed atrepaircentersthatwere far awayfrom
the spareswarehouse that normally suppliedthe customers. Since these commonitemswere typically
cheapparts it wasdecidedtostockadditional itemsata secondspareslocation. For example, part
numberAN960 is a washerusedin Plant-6,Plant-1,Plant-10, andinPhoenix. The Plant-6spares
locationsuppliedall airline customersplus Plant-6repair,Plant-10repair, andPlant-1repair– all of
whichare inRockford,IL. The parts neededbythe repaircenterinPhoenixcouldhave beenshipped
fromthe Plant-6spareswarehouse toPhoenix repair. However,itwasdecidedthatitwascheaperto
stock thatiteminthe Phoenix spareswarehouseratherthanactuallyshipthatpart fromPlant-6to
Phoenix. Phoenixsparesgotthe partsfrom Phoenix production/assembly,andjustmovedthe parts

3. Stocking Policy: What Parts to Stock and Where To Stock Them
Nov 11, 2014 Page 3
downthe hall to the Phoenix repairwarehouse asneeded. Sothe demandforthisitemwasfractured,
and as a resultrequired inventories intwospareswarehouses. Thisresultedinslightlymore safety
stock onthisitem.
In 1980, whenMr. D joinedthe sparesinventoryplanninggroup,Sundstrandwasalousysupplierand
was underanaudit byan ATA ProductSupportEnhancement Team. One of the thingsSundstranddid to
helptheirimage wastoopentwo sub-distributionlocations. One wasinBelgiumandone wasin
Singapore. About400 highervolume itemswere stockedateachlocation. Those twowarehouseswere
suppliedfromthe Rockford spareswarehouse atshortleadtimes –about 10 days. All of the stock at
those twolocationswere completelyredundantandrepresentedanincrease ininventory. Eventually,
duringa recessioncirca1991, theywere shutdowntosave inventory. Inthe mid1980s Mr. D tweaked
hisinventorylogictomitigate thisredundancy. That change involvedreducingthe ROPatthe main
spareswarehouse bythe ROPsof these twolocations.
Fortunately,Sundstrandhadnolarge bulkyspare parts. Everyitemcouldbe shipped viaairfreightand
couldgetto the customerinjusta fewdays. Therefore,there wasnoneedtofracture the demandfor
an itembystockingit at multiple locations. Caterpillar, forwhomMr.D also worked,haslarge bulky
parts. That may be whyCAT had multiplestockinglocationsinthe USand aroundthe world. Figure 1
showsthe impacton safetystockfor an itemstockedinthree locationsratherthanjustone.
Lead Time
in Months
Service
Level
Target Z-value
4.9 0.95 1.644854
Warehouse
Dmd
Month 1
Dmd
Month 2
Dmd
Month 3
Dmd
Month 4
Dmd
Month 5
Dmd
Month 6
Dmd
Month 7
Dmd
Month 8
Dmd
Month 9
Dmd
Month 10
Dmd
Month 11
Dmd
Month 12
Average
Monthly
Sigma
Monthly
Safety
Stock
A 12 6 8 18 6 9 10 13 15 13 7 9 10.5 3.8 13.7
B 3 4 2 1 1 4 3 2 2 4 0 6 2.7 1.7 6.1
C 0 1 0 0 0 4 0 2 0 2 1 1 0.9 1.2 4.5
Combined 15 11 10 19 7 17 13 17 17 19 8 16 14.1 4.2 15.2
Sum
A+B+C 24.3
Safety Stock= Sigma(monthly) * Sqrt(lead time) * Z-value
Table 1 - Fractured Demand Impact on Safety Stock
As can be seen,the sumof the safetystocksforthe three fracturedlocationsis24.3, but the safetystock
for a single locationwouldbe 15.2. The fracturingof the demandforthisitemincreasedthe safety
stock 59%. Inadditiontothe cost of more safetystockthere is alsothe costof the logisticsof moving
an itemto more than one location.
To sum up, Mr. D recommends stockingspares atonlyone location,if possible. Keepthatlocationclose
to the productionwarehouse. (Sundstrandsparesroutinelygave partsbackto productionsotheycould
make theirbuildschedules.)
Well,there itis;One more tastyentrée inthe Mr. D smorgasbordof ideas. Take what youwant,and
leave the rest.
Contact Mr. D at MisterD@windstream.net