Why Your Parts Inventory Needs the Right Spares Mix

Written by: Steven Caldwell

A couple of months ago, Major General (Ret. Air Force) H. Brent Baker spoke about integrating MRO software with service parts management technology. While reflecting on his time in the Air Force, General Baker brought up an interesting story:

"On one hand, our aircraft availability rate wasn't up to par because we were missing parts. On the other hand, we had hundreds of millions of dollars of excess inventory that was never used."

How did this happen? Over time, General Baker noticed that the branch was buying a lot of parts “but not the right mix of parts.”

There’s a lot to learn from this anecdote. The overall message is that having a large parts inventory isn’t conducive to keeping products up and running. You may have a 90% fill rate across your spare parts supply chain, but the other 10% of missing parts may be critical to a product’s function.

Another Look at Your Parts Inventory

Let’s use a simple example. A car cannot operate properly without a radiator. When the engine block becomes overheated, serious damage can occur to the cylinder heads, headgaskets, or cylinder blocks. As such, it’s easy to argue that a radiator is a critical part, but should a dealer stock as many radiators as it can afford?

Probably not. Radiators don’t fail as often as tires or windshield wipers. Some may last the entire lifecycle of the vehicle in which they’re installed. In addition, they’re expensive to store and transport.

So even though radiators are essential to a car’s proper function, the mean time between failures is often too low to warrant high stock of this item. At the same time, having no radiators available at all would increase the risk of the dealer not having the part it needs to get a customer back on the road.

This example illustrates a greater point: In order to institute the correct parts mix, you need to forecast which spares you will consume over the course of a product’s lifecycle.

Establishing the Right Spare Parts Mix

Getting the appropriate number of spare parts requires some kind of advanced inventory optimization capability that not only considers part criticality but also:

  • How much you’re willing to invest in your parts inventory.
  • Each part’s mean time between failure.
  • Your target availability levels.
  • Effective lead times between supply chain locations.
  • Each part’s carrying cost.

Accounting for these factors ensures you obtain the correct parts mix without exceeding budgetary limitations.

For example, the part inventory optimization algorithm would recognize that you don’t want to spend more than $2.5 million per year running your spare parts organization. At the same time, you have to maintain an asset availability rate of 96%. So it’s going to find ways to keep your carrying cost rates down without compromising uptime targets. 

Obviously, there's quite a bit of math involved. Vinod Arekar, PTC's Aerospace & Defense Fellow, wrote a white paper on how spare parts inventory optimization algorithms consider the business implications of parts planning decisions. Download it below to read his insights:

Optimize Your Spare Parts Inventory White Paper

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Tags: CAD Service Lifecycle Management (SLM)

About the Author

Steven Caldwell

Steven Caldwell is the Vice President of Business Development at PTC. Steven is a service parts optimization thought leader with over 15 years of best practice knowledge. He is a key contributor to the design, development and delivery of Servigistics – the industry leading service parts optimization solution. Steven and his team provide dedicated support for PTC’s Servigistics Business Unit helping service organizations orchestrate world-class service parts optimization (including service parts management and service parts pricing). Steven holds a Bachelor’s Degree in Economics and a Bachelor’s Degree in Computer Science from Vanderbilt University.