MRO Today - Defining safety stock needs

Defining safety stock needs

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This is the first of a two-part series on safety stock inventory. This article defines safety stock.

The article in the next issue of MRO Today will help you determine how much of it to keep on hand.

As Ive said in earlier columns, you must define an inventory category in order to have a means of controlling it. Without a definition, you dont know what you have and why you have it.

Before we start, lets get one thing clear. You cant classify your maintenance inventorys critical parts and major repair parts under any inventory rules, categories, types or means of calculating on-hand requirements. You need this inventory to avoid a line or plant shutdown. These parts are usually for your critical machines. Have them available. Period. End of discussion.

For other important parts carried in your maintenance inventory, protect against stockouts. You dont want to run out of a ready supply of these items. However, you can acquire the parts rather easily and, with a little air freight and expediting, get them in-house and the equipment up and running without causing major delays or late shipments of product. Having your druthers, you dont want to run out of these parts.

So, what really is safety stock? These parts are basically a fixed investment in permanent inventory. These are parts you have in stock, now and forever.

Safety stock never gets used.

It never generates value for your corporation. We generally apply a simple formula to calculate how much inventory to carry on average, a two-month supply of excess parts. That way, a two-month supply is available when the new shipment arrives. It sounds good, but look at the investment in stock you never use. There must be a better way.

OK, first define what you want your safety stock to do. Basically, safety stock is carried to protect from a worst-case scenario running out of repair parts when the machine breaks down. Thats the only real reason for safety stock. All other stocking requirements are for planned work orders. And if you plan a work order, you plan when you do the work. And if you use your head, you order the parts for a planned order and schedule the work after the required parts arrive.

That means do all machine overhauls, preventive maintenance, upgrades, new model introductions and general maintenance work on a planned basis. You dont need safety stock for these orders. Safety stock materials are for unplanned work orders (breakdowns).

Now that weve determined the reason for inventory, lets turn to the type of inventory were talking about. Establish what types of parts are required for breakdown repair or unplanned orders. Carry extra safety stock for those needs. The rest are planned orders. We dont need backup inventory for those order categories.

Once you determine necessary parts, determine the quantity.

This is fairly easy to do. If you have a reliable supplier, carry few of those items in stock. On the other hand, if the supplier is unreliable, or the parts are hard to get, or the manufacturer produces the parts once or twice a year, carry additional parts as safety stock.

Speaking from past experience, it can be a case of Murphys Law. Every time I use the last part in my spares inventory, the manufacturer has sold the last part on its shelf and the next production run is eight or 10 months away. That makes for a long, nervous winter hoping the machine survives until parts again become available.

But you have now classified parts and identified those needed for non-scheduled repair work. While these are not critical or major parts, they are still a major sourcing problem because the demand and resupply are unpredictable.

By identifying the planned parts requirements, the easily obtainable parts, and the critical and major parts, you are left with only a few parts in your spares inventory that really require any planning at all. This now becomes a relatively easy task to do and assures you of having the parts you need for unplanned repairs when you need them.

Next issue, well discuss the amount of parts to carry in safety stock and a way to calculate necessary levels of these parts.

"Chris" Christensen directs the University of Wisconsin School of Business' operations management program. He can be reached at .

This article appeared in the February/March 2001 issue of MRO Today magazine. Copyright, 2001