Surviving the Spare Parts Crisis. Joel Levitt
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feature of the modern corporation is the departmentalization of functions. Companies take this approach to create operational efficiencies and to manage the span of management control. Thus, most organizations will have the following groups or departments:
• operations
• maintenance
• storeroom and logistics
• purchasing and procurement
• finance
But what happens when these functions overlap? The elephant is your storeroom with its materials and spare parts inventory.
Each corporate function has its own influence on your materials and spare parts management outcomes. Yet each operates independently, often with little incentive to coordinate activities to improve the overall business results. They act based on what they think is needed, based on what they see, each looking at the same storeroom and literally seeing different things.
What Warehouse and Storeroom Employees See
The storekeepers see a bunch of SKUs that they have to receive, store, issue, count, care for, and requisition (Figure 4-1). You can say they babysit the parts, but in most cases don’t own them. They get yelled at by maintenance and operations for not having enough parts and by finance for having too many. They are expected to pick the parts with 100% accuracy and be able to do it immediately. Stores personnel count, inspect, shelve, locate, and reorder each part. They also provide housekeeping, security, and protection from mechanical, electrical, and environmental damage.
Figure 4-1: Storeroom SKUs
Maintenance Point of View
The maintenance department sees inventory as one of the elements needed to efficiently repair the company’s assets. Generally, the focus is not on the parts that are there, but instead on the ones that are not there (Figure 4-2). The department gets yelled at by operations if the part is not available and downtime results. So operations yells at stores to make sure that everything is stocked. In turn, stores yells at operations for not telling them how many of a part they really need or that it was needed at all.
Figure 4-2: The dreaded stock-out
Purchasing
Purchasing sees the paperwork. They may never touch or even see the part. They may have no idea what it does or where it goes. But they experience the hard work to source the parts, locate obsolete parts, and negotiate the best prices and terms (Figure 4-3). They are yelled at by maintenance for taking too long when buying parts for breakdowns. They are yelled at by finance to save more money, which then means that they get yelled at again by maintenance for buying cheap parts that do not last. In turn, they yell at maintenance to give them more time and not have so many emergencies. As you have gathered, there’s a lot of yelling! Purchasing also provides maintenance with meaningful advice such as, “Failing to plan is planning to fail.”
Figure 4-3: The purchasing department finds and buys parts.
Finance
Finance sees money tied up that they believe could be used better elsewhere. They yell at stores, maintenance, and purchasing to cut costs, to cut inventory levels, and to stop spending so much money (Figure 4-4). They see the maintenance role of repair as a pure expense. They get yelled at by everyone else for asking for too much to be achieved from too little.
Finance also monitors the cost of lead time and the cost of capital tied up in transit. They are also sensitive to the cost of obsolescence and, especially, write offs. Write-offs can come from parts that are now redundant or have decayed (e.g., rubber that has become brittle, components that have rusted).
With the elephant in your storeroom, it seems that everyone is yelling at everyone else! And no one sees tine; bigger picture.
Figure 4-4: Finance worries about the cost of stores, maintenance, and purchasing.
But what if they could all see the entire elephant, if each group could understand the perspective of the other? Understand what they were trying to achieve and the constraints within which they were working. Maybe then they could have a meaningful discussion about the management of this strange beast known as materials and spare parts inventory management. And maybe then they could work out a way to collectively improve the overall business results.
MISALIGNMENT OF ACCOUNTABILITY AND REALIGNMENT OF ACCOUNTABILITY
The core problem of misalignment of accountability was introduced to me by Phillip Slater, a leading consultant in Melbourne, Australia. This misalignment makes many of the issues we see with the maintenance inventory and warehousing function inevitable.
Having No Effective Constituency for the Spare Parts Causes Bad Decisions
Despite the risk management the parts provide, the maintenance inventory is often the first stop in any cost reduction project. It is easy to cut because there has never been an effective advocate for having either the part or a guaranteed access to the part. We could say that neither the parts nor the dollars should be the focus. Instead the focus should be on the function of the part and the criticality of that function to the success of your organization. This distinction is often missed. Before we investigate the function of the part, let us look at mistakes being made in maintenance warehouses around the world.
Games
Suppose that in order to improve long term profitability and viability, we design some games to enhance the company’s performance. These games may have prizes or just bragging rights.
Finance’s game is to improve the company’s working capital and profit. Therefore, they cut unnecessary expenses and reduce all inventories they can find. Perhaps they encourage operations to institute JIT (Just-in-Time) into the manufacturing process. They find a good amount of money invested in maintenance inventory parts that apparently are never used. Working capital improves over the period measured; finance wins their game for making the company more efficient.
The maintenance department’s game is to increase uptime to X%. To achieve that level, the department implements improved PM (preventive maintenance), PdM (predictive maintenance), and PrM (proactive maintenance) practices. With these improvements, and the effective insurance policy of critical (though very slow moving) spares, they believe they will win their game too.
The details of the insurance policy will be discussed at length in Chapter 5. For now, the policy states that in spite of maintenance’s best efforts to keep running machines running, if a critical machine breaks, they (maintenance already has the expertise and tools) can fix it quickly because they have invested in the expensive, long lead time spare parts to make the repair. The investment in the parts is the premium of the policy; the reduced downtime in case of a catastrophic event is the payout.
Finance won their game partially by liquidating slow-moving, long lead time spare parts. The probability of a breakdown does not change with the reduced maintenance inventory. But if there is a breakdown, the likelihood of a long downtime event increases