Struggling with Spare Parts Management?

Spare parts procurement can be a challenging process for many businesses, especially those in the manufacturing and maintenance industries. It's important to have a well-defined process in place to ensure that you're getting the right parts, at the right price, and on time.

Challenges in Spare Parts Procurement and Management

Several key challenges can make it difficult to effectively procure the spare parts needed to keep operations running smoothly.

Finding the right part: One of the biggest challenges in spare parts procurement is finding the right parts. With so many options available on the market, it can be difficult to know which ones are the best fit for a particular application. This can lead to delays in getting the part, which can in turn lead to downtime and lost productivity.

Critical Parts Identification: Classifying spare parts as critical should be a simple process because any item whose failure causes a machinery breakdown leading to a significant downtime is usually classified as a critical spare. However, as manufacturing technology is constantly evolving, the status of a critical spare is not static. As a result, the designation of a "critical part" may change as newer, more efficient components that perform the same function in process equipment become available.

Lack of Tools and Processes for Order Confirmation and Delivery Follow-up: Once you find the right part and source, the ordering and delivery follow-up processes are often manual and can require a lot of time for site buyers to chase. Many organizations also find that once orders are placed by e-mail, they disappear in a black box until delivery. A lack of proper tools for Order Confirmation and Delivery Follow-up can pose a risk to the production lines.

Spare Parts Can be Expensive: Another major challenge is the cost of spare parts. These components can be expensive, especially if they are specialized or hard to find. This can put a strain on a company's budget, especially if there are unexpected costs associated with procurement.

Lead Time: Another challenge that has worsened post-COVID is the lead time for spare parts. In many cases, it can take several weeks or even months for a spare part to be delivered, which can cause delays in repairs and maintenance. This can be particularly frustrating for businesses that rely on a quick turnaround time to keep operations running smoothly.

Inability to Integrate Small Suppliers: Spare parts orders with a large proportion of aftermarket suppliers are placed infrequently, in contrast to production part suppliers and major indirect distributors, where large quantities are ordered from the same supplier who is generally electronically integrated into the process. Setting up an EDI connection with a large number of infrequent suppliers is not cost-effective for either party.

Lack of Visibility into Spend and Cost Savings: Lack of good quality data, proper categorization and market analysis can lead to inadequate spend visibility, lost cost savings opportunities and amount spent against asset/equipment.

Inventory Management and Optimization: Finally, there is the issue of managing inventory effectively. Keeping track of the spare parts that are on hand, as well as anticipating future needs, can be a time-consuming and complex task. There are times when the parts may be readily available within the storeroom or another site, but organizations are unable to tell this due to disparate systems and a lack of manufacturer names and part numbers.

Inventory optimization is a critical function for most manufacturing companies because, without effective inventory control methods, you risk plant shutdowns. Several methodologies have been adopted for optimizing the inventory. Here are a few examples

• VED Analysis: You can profile the parts using VED (Vital, Essential, or Desirable) analysis. The analysis of a spare part's criticality should include determining a threshold level for the cost of stock-outs, which helps segment spare parts so that Vital spare parts are tightly controlled and have hard threshold levels, whereas Essential and Desirable items can be progressively less tightly controlled and have softer threshold levels.Vital (V): Vital category items are those items without which the production activities or any other activity of the company would come to a halt, or at least be drastically affected. ?Essential (E): A spare part will be considered essential if, due to its non-availability, a moderate loss is incurred.Desirable (D): A spare part will be desirable if the production loss is not very significant due to its non-availability. Most of the parts will fall under this category
• SDE Analysis: Another factor that helps in controlling the cost of carrying large inventory is the SDE Analysis where SDE stands for Scarce, Difficult and Easy based on the availability of items. This allows you to focus on items with more problematic lead times.Scarce (S): Scarce generally refers to imported items that require longer lead times and are frequently in short supply.Difficult (D): Difficult refers to items that are frequently available domestically but are difficult to obtain.Easy (E): Easy refers to items that are widely available and can often be obtained quickly and locally, with minimal effort.
• FSN Analysis: A third factor that can be used in right sizing your inventory is FSN analysis where FSN stands for Fast, Slow and Non-Moving items. You can utilize the inventory turnover ratio or inventory turns for a given period to classify the items.

?Overall, spare parts procurement and management can be a complicated process. However, by understanding the key challenges and working to overcome them, businesses can improve their procurement processes and ensure they have the spare parts they avoid both overstocking, which can be expensive, or running out of parts, which can cause delays and downtime.

Negotiating Spare Parts

Negotiating in this category can be a resource-intensive task, especially when dealing with OEM spare parts. One of the key elements of successful negotiating in this category is understanding the market since many manufacturers sell directly or have more strict distribution channels than other commodity types.

One of the biggest factors in negotiating OEM spare parts is that as a “sole source”, many manufacturers won’t negotiate pricing except in cases of very large volumes. Additionally, a manufacturer may have distribution policies that only allow certain distributors to have special pricing, meaning if you buy outside of those, you’re likely overpaying. Some organizations find that pricing they have negotiated directly with the manufacturer is not being honored because their sites were unknowingly buying from unapproved sources.

Lastly, a recurring theme in effective sourcing is understanding what you’re buying. It’s not uncommon for organizations to continue to buy spare parts from the list provided by the OEM, assuming they built all parts. In reality, a thorough analysis of the manufacturer name and part number could uncover opportunities to transition sourcing to a supplier or distributor to achieve cost savings.

Best practices to follow when it comes to managing spare parts:

Spare parts management is essentially about managing risk, and many companies tend to react to that risk rather than take proactive action to reduce it.

Identify the specific spare parts that you need: Before you start looking for spare parts, make sure you have a clear understanding of the exact parts that you need. This may require consulting with the manufacturer or vendor of the equipment or consulting with your in-house maintenance team.

Research potential suppliers: Once you know the specific parts that you need, it's time to research potential suppliers. Look for suppliers that have a good reputation, offer competitive pricing, and have a track record of delivering parts on time. It's also a good idea to compare prices from multiple suppliers to ensure that you're getting the best deal.

Consider purchasing spare parts in bulk: If you know that you'll need a particular spare part regularly, it may make sense to purchase it in bulk. This can save you money in the long run, and it can also reduce the risk of running out of a critical spare part when you need it most.

Create a spare parts inventory: Having a well-managed spare parts inventory can help you stay organized and ensure that you have the parts that you need on hand when you need them. Consider using inventory management software to help you track and manage your spare parts inventory across the enterprise to eliminate overstock and enable internal transfers of more costly items

Set up a regular maintenance schedule: Regular maintenance is key to ensuring that your equipment stays in good working order. By setting up a regular maintenance schedule, you can help prevent costly equipment downtime and ensure that you have the spare parts on hand when you need them.

By following these best practices, you can ensure that your organization can procure the spare parts that it needs, in a timely and cost-effective manner. This can help keep your equipment running smoothly and reduce the risk of equipment downtime.

Benefits of Spare Parts Management

The overall benefits of effective spare parts management include reducing both cost and the risk that an organization cannot deliver its product to the customer on time.

Increased uptime - Less emergency maintenance is needed since critical parts management has accurate, complete statistics on the mean-time between failures and other documentation that makes scheduling preventative maintenance more straightforward.

Increased productivity - When an efficient critical parts management program ensures that the right part is available at the appropriate time, missing or outdated replacement parts become issues of the past.

Reduced Inventory Costs - Carrying costs decrease as "non-critical" parts are removed from inventory, and warehouse staff spends less time searching through SKUs.

Reduction of Obsolete and Duplicate Materials - Obsolete and duplicate materials in your Inventory Management solution can result from ineffective spare parts management. Proactively managing processes to deal with spare part obsolescence, particularly for critical equipment, can help avoid issues when critical equipment needs to be repaired or maintained.

Reduced Shipping/Freight Expenses – Inventory optimization can help with accurately setting up reorder points and safety stock levels so orders can be placed with suppliers promptly and avoiding expedited delivery and off-contract purchases that result in increased costs.?

The DSSI?Advantage

Over the past 20+ years, DSSI has built its system, procurement processes and supplier relationships in a way that allows customers to streamline their procurement of spare parts.

Data Quality:

• DSSI’s Item Master Discipline ensures each item has the manufacturer name and part number in addition to the item description, supplier, product category, image and other attributes.
• DSSI’s program provides thoughtful supply base consolidation to reduce the overall number of suppliers but optimize the best source for each category and manufacturing line.

Sourcing

• Clients leverage DSSI’s expertise and decades of experience in managing spare parts procurement along with its strong supplier relationships and group sourcing aggregation.
• DSSI’s category management team continuously manages the supplier’s performance to ensure the timely delivery of goods. Additionally, they establish, maintain and manage pricing agreements at increased points below PPI index.
• The category management team also performs proactive strategic sourcing by identifying categories to target for cost reduction.
• Rapid onboarding of new suppliers through DSSI’s platform accelerates the initial launch and Directed Spend so users have a single process and buying experience.

Consolidation and System Integration:

• Clients no longer have to set up hundreds and thousands of suppliers in their e-procurement system. They only set up DSSI as a supplier and DSSI manages all the sub-suppliers in its system. DSSI supports a wide variety of ways in which clients can integrate their existing procurement applications, making it easier for their buyers and requisitioners.
• Once spare parts are sourced by DSSI, they are added to the customer’s unique catalog. As part of the sourcing process, DSSI stores its client's last paid price for each site so it can report on Cost Savings by site and also show the year-over-year trends for each item.
• Clients can access the strategically sourced and managed catalog either directly through DSSI’s Epic? system or by interfacing with the client’s current e-procurement system like Coupa, Ariba, SAP, etc. This ensures harmonized pricing across all buying locations.
• A single Purchase Order to DSSI across multiple suppliers/distributors eliminates the need to identify suppliers and generate PO’s specific to a supplier.

Spend Visibility

• Clients achieve enterprise-level Spend Visibility across all locations in North America and Europe using DSSI’s Advanced Spend Analytics , On Demand Business Intelligence and KPI Reporting tools.

Accounts Payable Efficiency

• The costs associated with scanning or manually entering invoices are eliminated as DSSI consolidates hundreds of small suppliers that may not have the ability to send EDI or XML invoices.
• DSSI processes result in cost reduction and process simplification for Accounts Payables and IT teams as DSSI manages the supplier invoices, payment settlement and taxation.
• Clients also experience improved cash flow by setting a single payment term across all DSSI-managed suppliers.

Want to learn more about how DSSI can help your organization in its spare parts management evolution? Reach out today.