Analyzing Spare Parts: Buy, Keep or Pass
One of the bigger questions faced by equipment owners is whether spare parts should be purchased and stored until needed or to save the cash and take the risk that equipment will fail unannounced. The decision is fraught with strong opinions, and cost either capital or expense. When profit is being lost because the equipment suffers an unplanned failure emotion usually wins and the owner is willing to pay nearly any price to get the equipment running again. Cost is a secondary thought and more spares get purchased. When equipment is running well, emotion wins as people are willing to take higher risk to save cash; the part is not needed because everything is going well. So, how does an owner operator take emotion out of the equation to make a proper decisions on spares?
The answer is to evaluate based upon the value the spare brings to the business. The equipment, process, manufacturing line, vehicle, etc. was originally designed to fulfill a specific function for the owner; therefore, its operation has a distinct value that can be expressed in currency. Buying and holding spare parts or equipment needs to be judged against that value. Long term cost of ownership, LTCO, expressed in terms of Net Present Value (NPV). NPV is a financial technique that compares various cost and/or revenue scenarios. As long as the assumptions in the scenarios are valid, an owner can make an informed decision based on the ranking of value in today’s dollars.
When a more quantitative analysis is desired, a reliability model can be generated and a Monte Carlo simulation performed on the entire system. This tool requires much more work, but provides quantitative values and a flexible analysis that lives with the manufacturing process. Answers can be generated in various terms that includes cash flow, capital cost and more.
If you are interested to evaluate spares and optimize Maintenance, Repair, and Operations, contact Becht and let our experts guide you to the highest value answer.
