Spare Parts Inventory and What to Consider
Inventory is a necessary evil in the supply chain. You need to have the correct parts available, at the correct time, in order to keep your production line running. When those parts are unavailable, it can cause down time that costs you money. So, how much spare parts inventory do you need to prevent down time? And what is that downtime worth to your business?
The first question you need to answer is how much down time your business can tolerate. In other words, what is the cost of one minute of downtime on your production line? This will help you determine how much inventory you need to keep on hand. To calculate the cost of downtime, you need to consider three factors:
- The direct costs associated with lost production, such as materials and labor
- The indirect costs associated with lost production, such as lost customers or opportunities
- The opportunity cost of not being able to produce something else while your line is down
Once you have a handle on the cost of downtime, you can then consider the current lead time for spare parts from your suppliers. Because of today’s current supply chain climate, it’s best to multiply the lead-time guidance by 2.
Now you can assess the true cost of being without that part, or function of your automated process. So, ask yourself:
-Do you have a manual process that can fill the longer lead time, where you’d be less efficient, but still somewhat productive?
-Is the loss of customer goodwill or even market share worth the cost to maintain a higher inventory?
Only you can answer that for your business.
But at least now, you have a framework to help make that decision.
Supply chain inventory management is vital to the success of any automated process or operation. By understanding the cost of downtime and evaluating your spare parts inventory, you can make informed decisions about how much inventory is needed to keep your business running smoothly.