Management: Big-Ticket Items

I’ve talked about the parts room before. It is either a strategic asset to the company or a sink hole for money (ok, some are in-between). Last time I highlighted the losses of productivity inherent in a poorly conceived and laid out store room. In this column I want to look at some of the goodies on the shelf.

Add up the value of the expensive parts on your shelf right now. Use a $500 or $1,000 cut-off. In some fleet inventories, the bulk of your money is tied up in these expensive spares. This is particularly true if your fleet includes some specialized equipment (like a municipal garage, bus company, heavy hauler, etc.).

I’ve also been talking about Lean Maintenance. The storeroom is Lean when it has the things you need in the numbers you need them in and no more or less. If you don’t have something in a Lean storeroom the truck pulls up with the parts the day before you need them!

Most storerooms are not Lean. Either they have too much of the wrong stuff or they have too little stuff (which causes loss of technician productivity and more downtime for the fleet). I want to discuss a simple technique to deal with excessive inventory, especially excessive big-ticket items in inventory.

In addition to not being Lean, these excessive inventories attract cutting. Let’s say, for example, that you are instructed to reduce the amount of MRO inventory. There are a couple of approaches you could take:

You could lower the Re-Order point (actually reducing or eliminating the safety stock). That will lower the inventory on the shelf but it will also increase the chance of a stock out in a critical part.

The simplest (and safest) way is to attack the big ticket items. But you have to be smart about this. These are items with a value greater than $500, $1,000 or even higher to start (in later iterations of this exercise you can lower the ticket amount).

Here’s how you proceed with big-ticket analysis and action:

1. List all the items in stock with a value greater than your target, starting with the most costly spare you stock. These items represent most of the dollars on the shelf. It might be good to set up a spreadsheet which includes usage, quantity on hand, lead time and cost data for the last few years.

2. Consider the stocking policy for each part. In other words, what is the business decision about whether you should stock the part, stock the assembly (such as stocking a whole engine instead of the parts), or contracting the repair out and stocking nothing (like transmission work)?

3. Determine whether this a capital spare or critical spare. These are a special class of spares that have long lead times and usually are expensive, stocked for critical equipment where the downtime is unacceptable. Usually you stock them to NOT use them. It sounds strange, but it is just like buying insurance. You stock the part (which is like paying an insurance premium) because you are unwilling to take the downtime risk just like you buy homeowner’s insurance because the risk of loss of your house is a risk you do not want to take. These parts are sometimes called Insurance Policy parts. Do not include these parts in the rest of the big ticket analysis on the first few passes. When you do include them, be careful

4. Ask what business action you can take to reduce your inventory level (to zero if possible). Some actions include consignment stock (the vendor still owns the stock but it is on your shelf), sharing the part with other users, accepting risk of downtime, contracting with vendor for certain performance (like 48-hour response for a rebuilt engine).

5. Determine what engineering action you can take to reduce the need for the part to zero. Options include re-engineering, re-purposing, improved PM or PdM, going to a heaver unit, etc.

Remember, the fattest inventory item is one for a unit no longer in service. Be ruthless about getting rid of this kind of item. Have you thought about using eBay to sell obsolete spares?

Thanks for reading.