The Reliability-centred Stockholding method
consists of a series of questions, starting
with the ways in which equipment can fail
(failure modes), moving through the effects of
failure and the effects of a stockout (part
unavailability) to setting the correct
stocking policy for each spare part.
RCS:
Five Basic Questions
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What are the maintenance requirements of the
equipment?
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What happens if no spare part is available?
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Can the spares requirement be anticipated?
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What stock holding of the spare is needed?
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What if the maintenance requirements cannot
be met?
The first question is answered as part of a
Reliability-centred Maintenance (RCM)
analysis. The final four questions ensure that
spares inventories and systems match the
needs of operations and maintenance.
3.1 What Happens if No Spare is
Available?
RCS bases the stockholding decision not on
manufacturer's recommendations, or on
engineering judgment, but on what happens if
no part is available. This step in the process
makes it possible to decide whether the
stockout matters, and hence what resources are
needed to reduce the risk of the stockout
occurring.
Like RCM, RCS recognises five categories of
consequences:
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The failure (for RCM) or stockout (for RCS)
itself has no direct consequences, but we
are exposed to an increased risk of the
consequences of another failure |
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The failure or stockout itself has direct
consequences which could hurt or kill
someone |
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The failure or stockout itself has direct
consequences which could lead to the
breach of an environmental standard or
regulation (in practice, stockouts in
safety and environmental categories are
rare) |
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The failure or stockout itself leads to a
loss of production or other economic loss
to the business |
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The effect of the failure or stockout is
limited to the expense of repair and
obtaining parts. |
The RCS decision diagram leads from the
analysis of stockout consequences to an
appropriate stocking policy for that part.
3.2 Can the Requirement be Anticipated?
Some spare parts requirements, such as those
arising from breakdown maintenance, are
inherently unplannable: parts fail at random,
without any obvious signs that a breakdown is
about to occur. However, some requirements can
be anticipated:
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Parts needed for planned overhaul or
replacement routines which occur at regular
intervals regardless of the equipment's
condition.
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Parts which are subject to condition
monitoring, where components or equipment
are checked and replaced if a failure is
about to occur.
Spare parts usage which can be anticipated is
often known as a dependent demand.
< ------------------ Component
"Life"------------ >
Parts are replaced or overhauled at fixed
intervals
if there is some characteristic life after
which their reliability deteriorates rapidly.
Planned preventive maintenance is scheduled to
replace or overhaul the component regardless
of its condition at regular intervals which
are determined by the life. If intervals are
based on convenient calendar time intervals,
so part requirements can be planned
even if the time between requirements is
shorter than the
part lead time.
"One
of the most significant
changes is a move to on-
condition tasks"
One
of the most significant changes brought about
by RCM is a move away from the planned,
preventive replacements of a second generation
maintenance system towards on-condition tasks.
These involve checking the condition of a
component and overhauling or replacing it only
if its condition is unacceptable. This causes
problems for procurement, since we do not know
whether a part will be needed until the
results of monitoring are available.
Nevertheless, using the RCS rules it is often
possible to avoid holding stocks on site.
3.3 What Stock Holding is Needed?
If it is not possible to anticipate a spares
requirement (and therefore avoid holding
parts), RCS then asks how many parts must be
held to support maintenance and production.
RCS recognises that 100% availability is an
unattainable ideal. Before calculating the
stock requirement, the RCS analyst needs to
specify a performance standard which depends
on the consequences of a stockout:
Category |
Performance Standard |
Increased Risk |
Minimum availability of hidden function |
Safety/ Environmental |
Maximum rate of stockout (stockouts per
year) |
Operational |
Minimum through-life costs |
Non-operational |
Service level |
In many cases the stockout has a direct impact
on operations (this is generally true even if
the equipment failure has safety or
environmental
consequences). RCS uses the technique of
through-life costing to determine the spares
needed.
3.4 Through-Life Costing
A stockout has operational consequences if
lack of a spare part leads to increased costs
over and above the cost of obtaining a spare.
In this case it is possible to find a balance
between the cost of holding spare parts and
the losses incurred if a spare is not
available when it is needed. A stockout may
cost money in several ways, including:
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Extended downtime or reduced output
leading directly to lost sales
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Penalty clauses for late delivery
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Cost of overtime to make up lost production
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Lower process efficiency or higher raw
material costs
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Poor product quality, leading to returns,
rework and poor customer impression
On the other hand, there are costs associated
with holding spare parts. As well as the cost
of purchasing the initial stock there
are continuing
expenses while the parts are held:
-
Purchasing, systems and administration
costs
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Deterioration (shelf life)
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Maintenance and repair while parts are in
the storeroom
Traditionally these expenses have been bundled
into a single holding cost which is a fixed
percentage of the part's purchase price. The
idea is to spread the stores administration
costs over all the lines in stock. It works
well for fast-moving parts, but the costs of
holding slow-moving items vary widely
depending on their physical size, shelf life
and maintenance
requirements. The optimum spares level is a
balance between total holding costs and the
cost of stockouts: high downtime
costs are incurred
if stocks are too low, but holding the spare
parts is expensive if the level is too high.
A second and more serious disadvantage of the
holding cost method is that it always
recommends a single spares holding without
taking any account of the fact that, while the
benefits of an increased spares holding are
felt over a period of time, the cost of
purchasing stock is felt immediately. The
problems of this approach can be seen by
considering three examples:
Example 1: Pre-commissioning
A new chemical process relies on a
magnetically driven pump. If the pump fails,
the process is shut down at a cost of about
£500 per hour. The manufacturers estimate
that the pump will fail catastrophically about
once every three years, but it is not possible
to predict when it will fail. If a spare were
not available, the manufacturer could supply a
new unit within five days, but nevertheless
they recommend that one spare pump should be
held on site at a cost of £40,000. Are they
right?
Example 2: Stock Review
A cost
review in steel plant has valued the
engineering spares inventory at
£50M, of which parts worth £10M have never
been used over the plant's 10 year life. Two
spare gearboxes, priced at £30000 each, are
part of the non-moving stock. The consultants
carrying out the review recommend that they
should be sold as scrap. Are they right?
Example 3: End of Plant Life
An offshore
installation uses water injection to maintain
pressure in an oil reservoir. The pump bearing
costs
£5000, and current policy is to hold 2 spares
because of the 3 month part lead time. One
spare has just been used, making a total of 5
over the 18 years of operation. The
computerised purchasing system recommends that
a new spare
should be ordered, but the platform has a
remaining
life of only 3 years: should the part be
ordered to bring the stock back to 2, or
should the stock be allowed to run down?
In the first example the decision is whether
or not to invest in a spare pump. If we buy a
spare, it will cost £40,000 immediately. On
the other hand, if we do not, the business
will suffer
because of production downtime in the future.
So the overall decision does not just involve
a balance between costs and benefits, but also
depends on the timing of these costs.
The question is different in the second case:
is it worth disposing of spares that we
already have, or should they be retained in
case they are needed? We may recoup a little
of the parts' value if we sell them; however,
if the parts are then eventually
needed, the cost of lost production could
be far greater than the scrap value.
Finally, example 3 looks at another aspect of
the spare parts problem. There is clearly no
point in reaching the end of plant life with a
full complement of spare parts (although this
is exactly what the traditional approach would
suggest). The question here is: how should
stocks be run down toward the end of plant
life?
“ The Traditional approach
fails because it does not
answer the most
fundamental question: is it
worth buying a spare part”
In
all of these cases, the traditional approach
fails because it does not answer the most
fundamental question of all: is it worth
buying a spare part, and if so, how many
should be purchased?
The through-life method answers the stock
analyst's real question: should we spend money
now (by buying stock) in order to secure
lower downtime costs in the future?
This suggests that we can look at the
inventory decision as an investment. If we buy
a spare, we immediately incur purchase costs.
During each year we incur further expenditure
as a result of purchase and repair of spare
parts, maintenance of parts in stock and a
risk of process downtime waiting for spares.
We can add together all of this expenditure
over the plant lifetime to determine our total
expenditure.
Initial outlay is lower if we buy no spares,
but
the costs of downtime are higher. Buying more
spares increases the initial investment, but
may reduce subsequent costs. The spares
holding which gives lowest overall expenditure
will be chosen. The versatility of this method
means that it can be applied to a wide variety
of decisions including stock disposal and
situations where plant lifetime is limited.
Since these methods relate directly to
questions of investment and disposal, we have
found that they are particularly powerful in
justifying
these decisions to managers who are
responsible for purchase authorisation.
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