Is Min-Max Inventory Management Right for Maintenance Parts Management Strategy?

Maintenance Spare Parts Management Strategy Must Ensure Replacement Parts are Onsite In the Correct Condition, In Time for the Repair or Replacement So there is Least Production Disruption and Lowest Business-Wide Risk

Does Use of Min-Max Inventory Management Strategy in Maintenance Spare Parts Management Deliver the Lowest Business Risk?

 


 

Dear Mike,

What is your opinion about the Min-Max method in an inventory management system?

Do you think it is applicable to use it in a power plant’s warehouse management?

With regards, Mohammad

 


 

Dear Mohammad,

The aim in maintenance is to have reliable equipment that does not fail and need spare parts. It is unlike retail and B2B consumption, where the aim is to get sales and constantly turnover product to generate greater profit. The inventory management logic applying to product turnover, profit-making scenarios may not apply to maintenance spare parts management where turnover means loss of profit—the opposite of what companies want.

Min-Max inventory management is based on triggering a replenishment order once the available quantity in the warehouse reaches a minimum (Min) allowed amount. The reorder quantity replenishes the stock back to a preset maximum (Max) amount. The quantity on-hand will fluctuate up and down but should never drop so low (the ‘safety stock’ level) as to run out of the item before being resupplied and restocked to the maximum quantity. Min-Max inventory management requires regular, stable demand to work properly. It also causes you to carry more stock on average than is necessary to meet the demand.

When equipment maintenance spare parts regularly turnover in industrial operations then Min-Max inventory would work. For example, air filters, lube filters, drive belts, brake pads, and consumables, like rags, nuts and bolts, lubricants, etc., can use Mini-Max replenishment logic. Where spare parts sit in the warehouse unused for years waiting for a failure event, then use of Min-Max inventory management is not a good fit for that scenario.

If you use preventive maintenance strategy and replace parts to a definable schedule or wearing rate, it’s likely you have a reasonably regular, stable demand and Min-Max parts management could work. If you use predictive maintenance and replace parts on-condition, then, provided you have a long P-F interval, you would not warehouse parts—you would order them when needed from the supplier for delivery and installation before the time of failure. If the P-F interval is too short, then you would carry those items in your warehouse, or ensure the supplier carries them in their warehouse.

However, if the use of spare parts is random and uncertain, for example, ranging from no use for many months/years to frequent replacements needed over a short time, then Min-Max inventory management would fail during high use periods, since a replenishment reorder triggered at Min may not arrive in time before stocking out. Whereas during low use periods you would carry unnecessary inventory and so suffer cash flow and warehousing cost penalties.

When maintenance spare parts use awaits future failure a strategy of minimising operating risk becomes the reasoning for carrying spare parts and setting stock levels. You stock those parts, and maintain their stock levels, to minimise procurement and warehousing costs while ensuring production carries minimal risk. Say a critical part is identified which upon failure stops production. When the failure will happen is unknown, but a failure is possible any time in future. Do you stock the critical spare or do you adopt some other spare parts management strategy, such as getting the supplier to carry the item in their warehouse and pay them a premium to cover their costs when you buy the spare? If you brought the critical spare and warehoused it you would spend money that may not need to be spent for years to come. But if you did not have the spare when the equipment failed, then production would be stopped until the replacement part arrived and was installed. Whether you carried the critical spare or not depends on the size of the risk for each option. You would go with the choice that resulted in the lowest total business risk.

In the maintenance world, total business risk reduction is the driver for making decisions. Maintenance spare parts warehouse management should not be driven by inventory management optimisation. Maintenance spare parts management needs to be driven by business risk management. When inventory management methods compliment business risk management and reduce total business risk, then use those inventory management methods. But if an inventory management method increases business risks, then do not use it. Instead look for inventory management methods that produce lower risks to your company.

All the very best to you,

Mike Sondalini
Lifetime Reliability Solutions

The CEO, Executive, Manager, and Engineer Who Wants Their Enterprise Asset Management and Maintenance Systems to Get World Class Reliability and New Profits

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