1) The document discusses strategies for optimizing spare parts inventory levels to reduce costs while maintaining service levels. It addresses four common myths about spare parts inventory.
2) One myth is that all spare parts are equal, but they differ in criticality, demand levels, and service commitments. Another myth is underestimating inventory holding costs, which can exceed the original part value over time.
3) The document recommends analyzing past service failures to identify root causes, segmenting inventory based on demand and service commitments, and considering inventory alternatives like expedited shipping to optimize levels while meeting targets.
Asset Inventory Management Objectives Classification Processes Development Ma...SlideTeam
"You can download this product from SlideTeam.net"
It has PPT slides covering wide range of topics showcasing all the core areas of your business needs. This complete deck focuses on Asset Inventory Management Objectives Classification Processes Development Management and consists of professionally designed templates with suitable graphics and appropriate content. This deck has total of fourteen slides. Our designers have created customizable templates for your convenience. You can make the required changes in the templates like colour, text and font size. Other than this, content can be added or deleted from the slide as per the requirement. Get access to this professionally designed complete deck PPT presentation by clicking the download button below. https://bit.ly/3ybfas9
The document discusses gamification and its uses for startups. It defines gamification as incorporating gameplay elements into non-gaming applications to improve customer experience, build engagement, and create loyalty. Popular game mechanics that can be used include social features, customization, tracking experiences and progression, competition through leaderboards, virtual rewards and currencies, and designing interfaces to mimic games. Gamification is aimed at shaping positive behaviors and engaging customers through meaningful experiences. Examples where gamification has been applied include workplaces, schools, healthcare, and communities.
The Big Five Inventory (BFI) is a 44-item inventory that measures an individual on the Big Five factors of personality: Extraversion, Agreeableness, Conscientiousness, Neuroticism, and Openness. Each factor is comprised of several facets, for example Extraversion includes facets like sociability, assertiveness, and positive emotions. Respondents indicate how much statements like "is talkative" and "is full of energy" apply to them. Scores on the BFI provide a multidimensional assessment of an individual's personality based on the dominant five-factor model.
Increase production through improved spare parts availabilityIMAFS
This document discusses how mining organizations can increase production through improved spare parts availability. It provides 12 elements for effective inventory management in mining operations, including classifying parts based on criticality and demand patterns. Forecasting demand for spare parts is challenging due to intermittent demand for many parts. Managing lead times is also important given the long and variable lead times common in mining supply chains. Implementing best practices for inventory management, such as separating demand types and improving forecasting accuracy, can help mining organizations reduce stockouts by over 80% while decreasing inventory levels by 20% or more.
This document discusses equipment management in construction projects. It covers organizing an equipment management department based on project size, managing spare parts inventories, ABC analysis for stock planning, and the importance of inspection and maintenance programs. Key aspects include defining roles for equipment management teams, considering factors like project size and equipment types, keeping minimal spare parts on hand, categorizing spare parts into A, B and C groups based on costs and quantities, and developing scheduled maintenance to minimize downtime and keep equipment productive.
Asset Inventory Management Objectives Classification Processes Development Ma...SlideTeam
"You can download this product from SlideTeam.net"
It has PPT slides covering wide range of topics showcasing all the core areas of your business needs. This complete deck focuses on Asset Inventory Management Objectives Classification Processes Development Management and consists of professionally designed templates with suitable graphics and appropriate content. This deck has total of fourteen slides. Our designers have created customizable templates for your convenience. You can make the required changes in the templates like colour, text and font size. Other than this, content can be added or deleted from the slide as per the requirement. Get access to this professionally designed complete deck PPT presentation by clicking the download button below. https://bit.ly/3ybfas9
The document discusses gamification and its uses for startups. It defines gamification as incorporating gameplay elements into non-gaming applications to improve customer experience, build engagement, and create loyalty. Popular game mechanics that can be used include social features, customization, tracking experiences and progression, competition through leaderboards, virtual rewards and currencies, and designing interfaces to mimic games. Gamification is aimed at shaping positive behaviors and engaging customers through meaningful experiences. Examples where gamification has been applied include workplaces, schools, healthcare, and communities.
The Big Five Inventory (BFI) is a 44-item inventory that measures an individual on the Big Five factors of personality: Extraversion, Agreeableness, Conscientiousness, Neuroticism, and Openness. Each factor is comprised of several facets, for example Extraversion includes facets like sociability, assertiveness, and positive emotions. Respondents indicate how much statements like "is talkative" and "is full of energy" apply to them. Scores on the BFI provide a multidimensional assessment of an individual's personality based on the dominant five-factor model.
Increase production through improved spare parts availabilityIMAFS
This document discusses how mining organizations can increase production through improved spare parts availability. It provides 12 elements for effective inventory management in mining operations, including classifying parts based on criticality and demand patterns. Forecasting demand for spare parts is challenging due to intermittent demand for many parts. Managing lead times is also important given the long and variable lead times common in mining supply chains. Implementing best practices for inventory management, such as separating demand types and improving forecasting accuracy, can help mining organizations reduce stockouts by over 80% while decreasing inventory levels by 20% or more.
This document discusses equipment management in construction projects. It covers organizing an equipment management department based on project size, managing spare parts inventories, ABC analysis for stock planning, and the importance of inspection and maintenance programs. Key aspects include defining roles for equipment management teams, considering factors like project size and equipment types, keeping minimal spare parts on hand, categorizing spare parts into A, B and C groups based on costs and quantities, and developing scheduled maintenance to minimize downtime and keep equipment productive.
Mro spare parts optimisation and inventory reduction uk 2017 11David Thompson
This 3-day training course covers techniques for optimizing spare parts inventories and reducing costs. It will discuss improving data quality, identifying duplicates, optimizing inventory parameters, challenging vendor recommendations, and selecting the right replenishment strategies. Past delegates have achieved 60-70% reductions in inventory costs. The course uses case studies and worksheets to help attendees develop action plans to optimize their own spare parts management.
This document provides an overview of inventory planning and control metrics that can be used to monitor and improve inventory performance. It discusses defining key metrics to uncover sub-optimal activities, evaluate performance against plans, and measure factors like forecast accuracy, inventory levels, and replenishment. The service can help organizations answer questions about how to measure, evaluate, focus improvements, understand costs, and identify opportunities to reduce inventory costs. The overall goal is to analyze variability and interpret results to enhance inventory planning and operations.
This article discusses pricing mechanisms for outsourced warehousing contracts. The three main types of pricing mechanisms are percentage of sales, cost plus, and rate based. Percentage of sales ties the fee to product sales value but may not relate to actual costs. Cost plus declares costs and adds a profit margin but can overstate resources. Rate based establishes fees for each activity based on detailed analysis of costs and is generally best. Gain sharing and performance-based logistics are also discussed as ways to incentivize cost savings and good performance. Careful planning, communication, and cost analysis at the contract design stage are emphasized as critical to developing an effective pricing mechanism.
Inventory Optimization as an Essential Part of your SiOP Process- our vision ...Solventure
As Solventure we take pride in being experts in designing and implementing Sales, Inventory and Operations Planning.
Companies that have a good SiOP process can’t imagine how to live without it. It is the key instrument for the CEO to navigate the business along the budget towards its strategic targets.
In this white paper we show how to optimize your inventory and why it is essential.
Operations performance is vital for any organization. There are five key objectives for operations performance: quality, speed, dependability, flexibility, and cost. Meeting these objectives provides advantages for both customers and for internal operations. Quality, for example, reduces costs and increases dependability inside an organization by minimizing mistakes. Dependability saves time and money internally by avoiding disruptions. Flexibility allows for faster response to changing needs and saves time by enabling quick adaptation. Meeting operations objectives is important for both external customer satisfaction and efficient internal processes.
Operations performance is vital for any organization. There are five key objectives: quality, speed, dependability, flexibility, and cost. Meeting these objectives provides advantages for both customers and internal operations. Quality improves through reducing mistakes and increasing stability. Speed reduces inventories and risks. Dependability saves time and money while providing stability. Flexibility allows for faster response and saving time. Lower costs allow for competitive pricing or increased profits. Meeting these five objectives is fundamental to any organization's sustainable success.
Operations performance is vital for any organization to succeed. The document discusses 5 key operations performance objectives - quality, speed, dependability, flexibility and cost. It explains how each objective provides advantages both externally to customers and internally within the operations of an organization. Achieving these objectives helps organizations run efficiently, be responsive to customers, and ultimately achieve sustainable success.
This document discusses strategic lead-time management. It argues that reducing lead times provides both cost and customer service benefits. Long lead times require more inventory and less responsiveness. The document outlines various pressures that have increased the importance of time-based competition, such as shortening product life cycles and customers' drive for reduced inventories. It discusses concepts like order-to-delivery cycle, cash-to-cash cycle, and the benefits of logistics pipeline management and reducing non-value adding time to compress lead times.
Chapter 2 inventory management in lean operationsAdnanAbbas47
The document discusses key concepts in inventory management. It describes the functions of inventory management as decoupling production processes, providing product selection for customers, taking advantage of quantity discounts, and hedging against price increases. It also defines different types of inventory including raw materials, work in process, spare parts, and finished goods. Additionally, it covers classifications like ABC analysis that prioritize important inventory items, and techniques for accurate record keeping and periodic counting to monitor inventory levels.
“Direct” Spend Management: Optimizing spend and increasing direct material av...Genpact Ltd
In the last few years since the Great Recession, organizations have attempted to optimize supply chain operations and position themselves for growth over the next 3-5 years. This includes tapping “low-hanging fruit” in the optimization journey, largely in the indirect sourcing transactional services such as logistics. Procuring “direct” material, however, seems to be a relatively untapped opportunity for organizations to continue optimizing their supply chains. Inevitably, companies can benefit significantly more by opting for an end-to-end framework rather than through incremental improvements to direct spend management processes.
This document discusses inventory optimization strategies for companies. It begins by stating that optimal inventory levels balance inventory costs, service levels, and sales. It then explores key drivers of inventory optimization, including sales and operations planning, inventory management, demand planning, vendor management, and key performance indicators. The document emphasizes that inventory optimization requires balancing inventory reduction with maintaining adequate service levels.
Question 11. The difference between profit sharing and stock .docxIRESH3
Question 1
1.
The difference between profit sharing and stock ownership is:
Answer
there is more risk involved with profit sharing than with stock ownership.
profit sharing becomes part of a base salary and stock ownership does not.
stock ownership becomes part of a base salary and profit sharing does not.
profit sharing encourages ownership thinking and stock ownership is ownership.
4 points
Question 2
1.
Which of the following examples would represent the ethical behavior of an executive?
Answer
Inflate stock prices to receive bonuses and stock options
Boost stock value through efficient operations, and effective leadership
Buying or selling stock based on knowledge about the company's future
Stretching accounting practices to present company performance in the best light
4 points
Question 3
1.
Vesting rights are the rights of the:
Answer
employee to receive a pension at retirement age regardless of the length of time he/she was employed with the company.
employer to transfer or terminate employees before reaching retirement so they can avoid paying pension benefits.
employee to receive a pension at retirement age as long as he/she was employed for a specified amount of time.
employer to keep employee contributions to pension plans if they leave the company before the specified amount of time.
4 points
Question 4
1.
Which of the following states that employees MUST have a choice about whether to retire?
Answer
Employee Retirement Income Security Act (ERISA)
Pension Benefit Guarantee Corporation (PBGC)
Age Discrimination in Employment Act (ADEA)
Older Workers Benefit Protection Act (OWBPA)
4 points
Question 5
1.
The difference between a cash balance plan and a defined-benefit plan is:
Answer
a cash balance plan earns interest at a predefined rate, and a defined-benefit plan guarantees a certain level of retirement income.
a defined-benefit plan earns interest at a predefined rate, and a cash balance plan guarantees a certain level of retirement income.
a cash balance plan specifies the size of investment, and a defined-benefit plan earns interest at a predefined rate.
a defined-benefit plan specifies the size of investment, and a cash balance plan guarantees a certain level of retirement income.
4 points
Question 6
1.
Which of the following is an example of an employee being paid based on a piecework rate?
Answer
A pay increase based on performance appraisal ratings
Being paid extra for work done in less than a specified amount of time
Pay calculated as a percentage of sales
Pay based on the amount of product produced
4 points
Question 7
1.
Which of the following is a legally required benefit an employer must provide?
Answer
Disability insurance
Life insurance
Worker's compensation
Paid leave
4 points
Question 8
1.
In addition to pay, what are some important aspects of making incentives work?
Answer
Performance measures are preset, passed down by u ...
KEY TO PROFITABILITY: SPARE PART MANAGEMENTDr. V.N. Tikku
Many companies fail not because of more consumption but due to maintenance of huge spare inventory which remains underutilized ! The presentation looks in to reasons as well as remedial actions...
This document summarizes a case study of Visagio helping Nordgold, an international gold mining company, optimize its spare parts inventory management. Visagio embedded a team at Nordgold's Taparko mine in Burkina Faso who analyzed the mine's spare parts data and processes. They found the data was unreliable and processes unclear. Using a proprietary optimization tool, they simulated inventory processes and optimized stock levels and parameters. This reduced unnecessary stock, improved collaboration between departments, and saved Nordgold over $1.5 million in one quarter through more efficient spare parts management.
Reverse logistics programs are complicated but can provide opportunities. They involve managing returns, repairs, and used goods in ways that (1) generate additional revenue, differentiate companies, and support new product demand; (2) establish customer loyalty; and (3) are considered part of successful growth strategies. However, reverse logistics requires defined processes and metrics since returns are variable, and many companies currently do not handle returns well due to a lack of focus on this area.
Telco Construction Equipment Company (TELCON) manages its supply chain through strategic, tactical, and operational activities. At the strategic level, this includes network optimization and supplier partnerships. Tactical activities involve sourcing, production planning, and transportation. Operational activities include planning, sourcing, production, fulfillment, and performance tracking across the supply chain on a daily basis. An integrated supply chain management approach aims to deliver the right products to customers at the lowest cost by streamlining processes and information sharing between partners.
IndustryWeek Published an Article From MRPeasy "Can’t Track 28 KPIs? Focus on These Top 10".
https://www.industryweek.com/operations/can-t-track-28-kpis-focus-these-top-10
www.mrpeasy.com
- Ties Only Limited has experienced strong sales growth in its first two quarters, increasing from $420,000 to $680,000. However, its gross profit margin declined from 52% to 50%.
- While the company reported losses over $188,000, many of the costs it incurred like website development and launch marketing are one-time startup costs that will not continue in the future.
- The decline in gross profit margin is a potential concern that needs investigation, but overall the financial performance is not as bad as it initially appears given that the company is still in its early startup phase.
More Related Content
Similar to APICS- Spare Parts Strengthen the Whole
Mro spare parts optimisation and inventory reduction uk 2017 11David Thompson
This 3-day training course covers techniques for optimizing spare parts inventories and reducing costs. It will discuss improving data quality, identifying duplicates, optimizing inventory parameters, challenging vendor recommendations, and selecting the right replenishment strategies. Past delegates have achieved 60-70% reductions in inventory costs. The course uses case studies and worksheets to help attendees develop action plans to optimize their own spare parts management.
This document provides an overview of inventory planning and control metrics that can be used to monitor and improve inventory performance. It discusses defining key metrics to uncover sub-optimal activities, evaluate performance against plans, and measure factors like forecast accuracy, inventory levels, and replenishment. The service can help organizations answer questions about how to measure, evaluate, focus improvements, understand costs, and identify opportunities to reduce inventory costs. The overall goal is to analyze variability and interpret results to enhance inventory planning and operations.
This article discusses pricing mechanisms for outsourced warehousing contracts. The three main types of pricing mechanisms are percentage of sales, cost plus, and rate based. Percentage of sales ties the fee to product sales value but may not relate to actual costs. Cost plus declares costs and adds a profit margin but can overstate resources. Rate based establishes fees for each activity based on detailed analysis of costs and is generally best. Gain sharing and performance-based logistics are also discussed as ways to incentivize cost savings and good performance. Careful planning, communication, and cost analysis at the contract design stage are emphasized as critical to developing an effective pricing mechanism.
Inventory Optimization as an Essential Part of your SiOP Process- our vision ...Solventure
As Solventure we take pride in being experts in designing and implementing Sales, Inventory and Operations Planning.
Companies that have a good SiOP process can’t imagine how to live without it. It is the key instrument for the CEO to navigate the business along the budget towards its strategic targets.
In this white paper we show how to optimize your inventory and why it is essential.
Operations performance is vital for any organization. There are five key objectives for operations performance: quality, speed, dependability, flexibility, and cost. Meeting these objectives provides advantages for both customers and for internal operations. Quality, for example, reduces costs and increases dependability inside an organization by minimizing mistakes. Dependability saves time and money internally by avoiding disruptions. Flexibility allows for faster response to changing needs and saves time by enabling quick adaptation. Meeting operations objectives is important for both external customer satisfaction and efficient internal processes.
Operations performance is vital for any organization. There are five key objectives: quality, speed, dependability, flexibility, and cost. Meeting these objectives provides advantages for both customers and internal operations. Quality improves through reducing mistakes and increasing stability. Speed reduces inventories and risks. Dependability saves time and money while providing stability. Flexibility allows for faster response and saving time. Lower costs allow for competitive pricing or increased profits. Meeting these five objectives is fundamental to any organization's sustainable success.
Operations performance is vital for any organization to succeed. The document discusses 5 key operations performance objectives - quality, speed, dependability, flexibility and cost. It explains how each objective provides advantages both externally to customers and internally within the operations of an organization. Achieving these objectives helps organizations run efficiently, be responsive to customers, and ultimately achieve sustainable success.
This document discusses strategic lead-time management. It argues that reducing lead times provides both cost and customer service benefits. Long lead times require more inventory and less responsiveness. The document outlines various pressures that have increased the importance of time-based competition, such as shortening product life cycles and customers' drive for reduced inventories. It discusses concepts like order-to-delivery cycle, cash-to-cash cycle, and the benefits of logistics pipeline management and reducing non-value adding time to compress lead times.
Chapter 2 inventory management in lean operationsAdnanAbbas47
The document discusses key concepts in inventory management. It describes the functions of inventory management as decoupling production processes, providing product selection for customers, taking advantage of quantity discounts, and hedging against price increases. It also defines different types of inventory including raw materials, work in process, spare parts, and finished goods. Additionally, it covers classifications like ABC analysis that prioritize important inventory items, and techniques for accurate record keeping and periodic counting to monitor inventory levels.
“Direct” Spend Management: Optimizing spend and increasing direct material av...Genpact Ltd
In the last few years since the Great Recession, organizations have attempted to optimize supply chain operations and position themselves for growth over the next 3-5 years. This includes tapping “low-hanging fruit” in the optimization journey, largely in the indirect sourcing transactional services such as logistics. Procuring “direct” material, however, seems to be a relatively untapped opportunity for organizations to continue optimizing their supply chains. Inevitably, companies can benefit significantly more by opting for an end-to-end framework rather than through incremental improvements to direct spend management processes.
This document discusses inventory optimization strategies for companies. It begins by stating that optimal inventory levels balance inventory costs, service levels, and sales. It then explores key drivers of inventory optimization, including sales and operations planning, inventory management, demand planning, vendor management, and key performance indicators. The document emphasizes that inventory optimization requires balancing inventory reduction with maintaining adequate service levels.
Question 11. The difference between profit sharing and stock .docxIRESH3
Question 1
1.
The difference between profit sharing and stock ownership is:
Answer
there is more risk involved with profit sharing than with stock ownership.
profit sharing becomes part of a base salary and stock ownership does not.
stock ownership becomes part of a base salary and profit sharing does not.
profit sharing encourages ownership thinking and stock ownership is ownership.
4 points
Question 2
1.
Which of the following examples would represent the ethical behavior of an executive?
Answer
Inflate stock prices to receive bonuses and stock options
Boost stock value through efficient operations, and effective leadership
Buying or selling stock based on knowledge about the company's future
Stretching accounting practices to present company performance in the best light
4 points
Question 3
1.
Vesting rights are the rights of the:
Answer
employee to receive a pension at retirement age regardless of the length of time he/she was employed with the company.
employer to transfer or terminate employees before reaching retirement so they can avoid paying pension benefits.
employee to receive a pension at retirement age as long as he/she was employed for a specified amount of time.
employer to keep employee contributions to pension plans if they leave the company before the specified amount of time.
4 points
Question 4
1.
Which of the following states that employees MUST have a choice about whether to retire?
Answer
Employee Retirement Income Security Act (ERISA)
Pension Benefit Guarantee Corporation (PBGC)
Age Discrimination in Employment Act (ADEA)
Older Workers Benefit Protection Act (OWBPA)
4 points
Question 5
1.
The difference between a cash balance plan and a defined-benefit plan is:
Answer
a cash balance plan earns interest at a predefined rate, and a defined-benefit plan guarantees a certain level of retirement income.
a defined-benefit plan earns interest at a predefined rate, and a cash balance plan guarantees a certain level of retirement income.
a cash balance plan specifies the size of investment, and a defined-benefit plan earns interest at a predefined rate.
a defined-benefit plan specifies the size of investment, and a cash balance plan guarantees a certain level of retirement income.
4 points
Question 6
1.
Which of the following is an example of an employee being paid based on a piecework rate?
Answer
A pay increase based on performance appraisal ratings
Being paid extra for work done in less than a specified amount of time
Pay calculated as a percentage of sales
Pay based on the amount of product produced
4 points
Question 7
1.
Which of the following is a legally required benefit an employer must provide?
Answer
Disability insurance
Life insurance
Worker's compensation
Paid leave
4 points
Question 8
1.
In addition to pay, what are some important aspects of making incentives work?
Answer
Performance measures are preset, passed down by u ...
KEY TO PROFITABILITY: SPARE PART MANAGEMENTDr. V.N. Tikku
Many companies fail not because of more consumption but due to maintenance of huge spare inventory which remains underutilized ! The presentation looks in to reasons as well as remedial actions...
This document summarizes a case study of Visagio helping Nordgold, an international gold mining company, optimize its spare parts inventory management. Visagio embedded a team at Nordgold's Taparko mine in Burkina Faso who analyzed the mine's spare parts data and processes. They found the data was unreliable and processes unclear. Using a proprietary optimization tool, they simulated inventory processes and optimized stock levels and parameters. This reduced unnecessary stock, improved collaboration between departments, and saved Nordgold over $1.5 million in one quarter through more efficient spare parts management.
Reverse logistics programs are complicated but can provide opportunities. They involve managing returns, repairs, and used goods in ways that (1) generate additional revenue, differentiate companies, and support new product demand; (2) establish customer loyalty; and (3) are considered part of successful growth strategies. However, reverse logistics requires defined processes and metrics since returns are variable, and many companies currently do not handle returns well due to a lack of focus on this area.
Telco Construction Equipment Company (TELCON) manages its supply chain through strategic, tactical, and operational activities. At the strategic level, this includes network optimization and supplier partnerships. Tactical activities involve sourcing, production planning, and transportation. Operational activities include planning, sourcing, production, fulfillment, and performance tracking across the supply chain on a daily basis. An integrated supply chain management approach aims to deliver the right products to customers at the lowest cost by streamlining processes and information sharing between partners.
IndustryWeek Published an Article From MRPeasy "Can’t Track 28 KPIs? Focus on These Top 10".
https://www.industryweek.com/operations/can-t-track-28-kpis-focus-these-top-10
www.mrpeasy.com
- Ties Only Limited has experienced strong sales growth in its first two quarters, increasing from $420,000 to $680,000. However, its gross profit margin declined from 52% to 50%.
- While the company reported losses over $188,000, many of the costs it incurred like website development and launch marketing are one-time startup costs that will not continue in the future.
- The decline in gross profit margin is a potential concern that needs investigation, but overall the financial performance is not as bad as it initially appears given that the company is still in its early startup phase.
Similar to APICS- Spare Parts Strengthen the Whole (20)
1. EXCESS
ADEQUATE
ADEQUATE
EXCESS
42 May/June 2015
Howtooptimize
thisessentialinventory
without hurting
service levels
BY JOZO ACKSTEINER AND SHAWN TAY
The shorter the
replacement time,
the more stocking
locations close to
customers likely are
going to have to
be provided.
Look at the spare parts network and
transportation options.
Professionals who
manage spare parts
often face extreme
situations where, for
example, 5 percent of
parts represent
90 percent of the
overall consumption.
All spare parts are
not the same; nor do
they provide the same
service to customers.
Incorrect parts
provisioning can
lead to poor
customer service.
Spare Parts
STRENGTHEN
THE WHOLE
2. apics.org/magazine 43
I
t’s crucial for spare parts supply chains to have the necessary
inventory at the right time and right place to meet customer
service performance expectations. Inventory reduction
initiatives therefore typically are considered off-limits in
the after-sale-support supply chain. However, the following
strategies make it possible to identify opportunities for optimization,
significantly reduce inventory, and maintain service levels.
Spare parts services impose lofty requirements on supply chain
professionals. The need for service typically arises when a customer
is facing an emergency—often one in which a product does not work
and there is an urgent need for replacement parts. Providing them
quickly can be costly, particularly if there are hundreds or thousands
of items with low turnover.
Inventory is a deciding factor for both service quality and cost.
Having stock in place guarantees that a needed part is available in a
timely manner. But the cost of holding spare parts inventory can be
huge—sometimes significantly higher than the original item value—
and it may not generate any revenue for the business.
The authors have analyzed numerous spare parts supply chains and
discovered that inventory levels often are misallocated. Sometimes,
there is insufficient or incorrectly positioned inventory for critical or
high-demand parts, which causes customer dissatisfaction. Other times,
fear of poor service levels results in bloated inventories. Meanwhile,
inventory is seen as too revered to question. Some supply chain
managers even claim that, despite company-wide inventory reduction
targets, spare parts inventory should be increased.
Such situations demand change and improvement. Analytics can
help establish more logical inventory levels and ensure that spare parts
supply chains are appropriately arranged.
FOUR MYTHS
There are four myths in spare parts supply chains that must be
busted in order to apply proper analytics and reach inventory-
improvement goals.
Myth 1: All spare parts are equal. All spare parts are not the same;
nor do they provide the same service to customers. This fallacy is a
major driver of inefficient spare parts supply chains and misallocation
of parts inventory. Furthermore, incorrect parts provisioning can lead
to poor customer service.
Different parts have different effects on overall service perfor-
mance. There are three major factors that distinguish the importance
of a spare part to the customer: criticality of the part, contractual
obligation for providing the part, and demand for the part. Managers
must take these factors into consideration as they plan for parts
provisioning. First, criticality describes the importance of the part to
keeping a product running. For example, an industrial printer can
run with a dented panel, but not with a worn out drive motor com-
ponent. Criticality influences the urgency of needing the part and,
therefore, stocking quantity and proximity to the customer.
Next, contractual obligation deals with the service commitment
to the customer. The contract determines the service that is required
for a product. The metrics that have the greatest impact on spare part
stocking requirements are as follows:
• Reaction and replacement time in which the organization com-
mits to providing a part: The shorter the replacement time, the
more stocking locations close to customers likely are going to
have to be provided.
• Committed service level: This often is measured through the
percentage of parts that are delivered on time. The higher the
committed service level, the more inventory needs to be provided
to avoid stockouts.
Lastly, demand for the number of parts consumed and the pattern
of consumption must be well-thought-out. The impact of part demand
on overall spare parts supply chain performance often is underesti-
mated. The number of parts needed to service a product can easily go
into the hundreds or thousands. However, part demand distribution
might be uneven.
Professionals who manage spare parts often face extreme situations
where, for example, 5 percent of parts represent 90 percent of the over-
all consumption. This means that a very tiny number of parts are driv-
ing the bulk of service and supply chain performance. After all, if 5
percent of the parts contribute to 90 percent of supply chain functions,
then a whopping 95 percent affect only 10 percent of performance.
Myth 2: Inventory-related costs are unimportant. Frequently,
inventory-related spare parts costs are unclear. This often results in
these costs being underestimated. Over the potentially long holding
time of a spare part, these expenses really add up. For instance, if
inventory-related costs are 10 percent of the parts price each year, and
the profit margin on service parts is 10 percent, then holding a compo-
nent for one year will consume that part’s entire profit.
For low-running parts, holding time can be several years before the
item is actually used. But no matter how low the volume, there must be
at least one unit available to ensure serviceability. Therefore, the days
of inventory of such low-running parts, calculated by average stock
divided by demand, are extremely high. The inventory-related costs
skyrocket, easily exceeding the value of the part.
Myth 3: Every product sale is a good sale. Another common issue
is considering the selling of a product independently of the after-sales
The cost of holding spare parts inventory
can be huge—sometimes significantly higher
than the original item value.
3. service commitment. This can result in a significant loss, particularly
if the error is combined with the underestimation of inventory costs,
as described in the previous section.
Myth 4: Inventory reduction always results in poorer service
levels. The last myth is the belief that reducing inventory will always
result in higher stockouts and lower service levels. This concept proves
to be true when taking into account only one individual part. However,
on an aggregated level—when considering overall inventory and service
level performance—there may be different results. Stock distribution
can be so ineffective that reducing inventory improves service.
Low-volume parts tend to be over-stocked, while high-volume
parts have insufficient inventory. In such cases, inventory rebalancing
achieved by eliminating low-volume parts and allocating more of the
budget to high-volume parts is worthwhile. It is possible to significantly
raise service levels on those high-volume parts and, thus, increase
overall service while trading off a minimal impact on low-volume parts.
SPARE PARTS INVENTORY CONTROL
To address these challenges, it’s first necessary to acknowledge that a
100 percent customer service level is not achievable. As most businesses
near 100 percent, the costs begin to rise exponentially as inventory
levels climb. The right approach is to decide what service level is right
for the company and how to achieve it most effectively. Use Pareto anal-
ysis on parts demand to better understand the portfolio. (See Figure
1.) Which parts make up the bulk of the demand and hence have the
highest impact on service? These items are the key to success.
In addition, it’s important to know where the insignificance barrier
lies. This is the point where demand of parts is so small that, for the
considered timeframe, it’s impossible to predict if demand will be
zero or just close to zero. Note that it is unfeasible to prioritize such
parts based on their forecast volume. Parts with volume falling below
this barrier should be deprioritized for inventory holding unless they
are critical to the operations of a product or if there is a contractual
obligation to provide the item.
Next, identify the root causes behind service-level misses by con-
ducting a thorough analysis of past failures. Were requests left unful-
filled because the parts were unavailable? If so, this points to a flawed
inventory policy. Or perhaps parts were available, but there were other
issues, such as poor logistics network performance? Such a scenario
reveals a supply chain obstacle beyond spare parts inventory. Figure
2 illustrates a company whose service-level misses mostly result from
stockouts—largely high-demand parts. This would be an easy fix, as
stocking more high runners does not require much inventory.
If it is determined that service-level failures are being driven by insuf-
ficient spare parts inventory, it’s time to improve inventory distribution.
As mentioned previously, not all parts are equal. Thus, it is advisable
to segment inventory into two dimensions: service commitment and
volume. Focus attention on providing the appropriate inventory for the
highest-volume parts and items requiring the greatest service commit-
ment. Target inventory reduction efforts at the parts with low demand
and low service commitment—or find stocking alternatives.
However, parts segmentation alone cannot optimize inventory.
While it is helpful to set a general
stocking strategy, each part needs to
be evaluated individually. Ask ques-
tions such as if the part is important
for a new product introduction or if
there are contractual obligations to
stock a specific part.
Next, consider alternatives to
stocking. One option is to use
expedited shipments. Look at the
spare parts network and trans-
portation options. Would the cost
of express shipment from cen-
tral locations outweigh the cost
of holding inventory? A second
possibility for critical parts is to
stock them on-site at the customer
facility. Three-dimensional printing
may be applicable, as well. Several
industries are running pilots to test
this alternative to parts stocking.
Another option is to leverage
low-running parts across several
regions. If regional demand for the
items is low, then cross-regional
44 May/June 2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PERCENTOFCONSUMPTION
HIGH RUNNERS 2 PERCENT OF PARTS, 80 PERCENT OF VOLUME
MEDIUM RUNNERS 3 PERCENT OF PARTS, 10 PERCENT OF VOLUME
LOW RUNNERS 90 PERCENT OF PARTS, 10 PERCENT OF VOLUME
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
INSIGNIFICANCE BARRIER
Figure 1: Pareto analysis of serviced parts
SPARE PARTS STRENGTHEN THE WHOLE
4. apics.org/magazine 45
demand might be a good lever. Of course, such parts may require
expedited shipments to meet service commitments.
Finally, collaboration between sales and operations is crucial to
ensuring effective inventory allocation. Total product profitability
does not stop at revenue minus cost of goods; rather, the expenses
associated with providing support throughout an item’s service life
cycle must be considered when determining whether and how a
product is brought to market.
Jozo Acksteiner is a strategy and analytics manager for Hewlett-Packard’s
Strategic Planning and Modeling group in Singapore. He also is an
associate professor in the department of Industrial and Systems
Engineering at the National University of Singapore and the founder of
geolyx.com, a geographical analytics solutions provider. Acksteiner may
be contacted at jozo.acksteiner@hp.com.
Shawn Tay is a strategy and analytics manager for Hewlett-Packard’s
Strategic Planning and Modeling group in Singapore. He has almost 20
years of industry experience, and previously worked for Deloitte Consulting’s
supply chain practice, Wal-Mart, Safeway, and the Tibbett and Britten group
(now a part of DHL-Exel). Tay may be contacted at shawn.tay@hp.com.
To comment on this article, send a message to feedback@apics.org.
Figure 2: Sample hit-or-miss analysis and detailed breakdown of stockouts
HIT RATE POTENTIAL IF ALL STOCKOUTS ARE AVOIDED
Miss
Hit
100
Total Stockout Logistics Information
Technology/Other
7
2 1
90
10
97
HIGH RUNNERS 76 PERCENT
MEDIUM RUNNERS 8 PERCENT
LOW RUNNERS 16 PERCENT
Register at apics.org/extralive.
APICS Extra Live: Optimize Spare Parts Inventory and Service Levels
Attend this APICS Extra Live to gain deeper insight into the May/June article
“Spare Parts Strengthen the Whole.” The authors will reveal how it is possible
to significantly reduce inventory while preserving service-level expectations
in spare parts supply chains.
Participants will discover
̥ a proven strategy for analyzing and improving spare parts supply chains
̥ effective techniques for meeting customer requirements
̥ essential inventory lessons and concepts in after-sale support.
Presented by:
Jozo Acksteiner
Strategy and Analytics Manager
Hewlett-Packard
Shawn Tay
Strategy and Analytics Manager
Hewlett-Packard
Date: June 4, 2015
Time: 9:00 a.m. Central