How to Optimize Spare Parts Inventory Management

Risks of Keeping Spare Parts for Inventory 

Not having the necessary spare parts on hand can cause significant problems in the product lines. An out-of-stock part can delay urgent work and cause losses in productivity. Depending on the contribution of the specific part, a missing spare part can cause delays in repair or a complete outage even. To make it easier to understand, an average manufacturer in the automotive industry can lose up to 22,00 USD per minute if the production line stops.  

On the flip side of the coin, even though pre-ordering spare parts is necessary to ensure no disruption in the operations, this carries the risk of capital being tied up in accumulating supply. There are several issues that can result from holding stocks of spare parts. The first and the most apparent issue is the upfront costs that need to be paid to buy the product, and the costs associated with holding the stock in the inventory. Although it might not be as obvious as the upfront purchase cost, the business will have to bear the administrative costs, shipping costs, and holding costs throughout the process of acquiring and storing the spare parts till they are used.  

What is spare parts inventory management? 

First, it is important to understand the concept of Inventory Management before we dive into Spare Parts Inventory Management. Inventory Management is the process of acquiring stocks for inventory purposes as well as tracking the usage and movement of the said stocks. Specific aspects of inventory management include procurement, storage, and tracking for utilization.

As for the term “Spare Parts”, these types of equipment refer to the parts of the machine that are necessary for the maintenance and continuity of operations. Spare parts inventory management is creating a balance between the costs of acquiring inventory and the risk of spare parts being out of stock in the production line. To minimize the waste that does not add real value to the business, proper inventory management is required.

With proper inventory management, the procurement team can come up with a better schedule for the arrival of incoming spare parts to reduce the redundant work needed to go through the entire procurement process for similar parts. The purchasing team can also gain leverage over the suppliers by bulk ordering to get a better price. Holding costs can also be minimized by identifying the materials that can be allowed to arrive just in time for the scheduled process. 

How to Identify Spare Parts’ Criticality 

There are several ways companies can adopt to identify which equipment can bear the risks of just-in-time management and which equipment are the ones that need to be on hand at all times to avoid costly disruption in the production line. Here are a few of them (1): 

1. Set the criticality criteria

Even though the success of a product line relies on the collective contribution of different parts and equipment, not all parts hold the same criticality. Establishing objective criteria for what is regarded as “critical” to the business can help create a more systematic approach to holding balanced stock levels.

2. Communicate with Procurement Teams 

An effective inventory management strategy closes the gap between the demand and supply sides of the production lines. Creating regular communications between the procurement team and production team can develop a more holistic approach to stock acquisition. 

3. Perform Regular Audits 

There is no “easy way” to evaluate the effectiveness of any equipment or process rather than performing routine audits and check-ups. Routine audits are necessary for companies to discover continuous improvement opportunities.  

4. Maximize the technology available

Managing the inventory involves several touch points that can get very complicated to perform manual tracking. Available technology such as intranet, internet of things, and interconnectedness between devices and departments, should be utilized to make more accurate tracking and analytics. By utilizing modern software, companies can do more than just historical usage monitoring and perform advanced forecasting and analytics for inventory management. 

Three Best Practices for Spare Part Inventory Management 

1. Implement Proactive Maintenance 

Although it might seem impossible to abandon the reactive maintenance systems completely, a preventive maintenance strategy should be adapted as a core aspect of spare parts inventory management and maintenance tasks as it can help with financial optimization.  

2. Develop Proper Inventory Control Measures 

A cloud-based or an online-based inventory management system can help lower the cost of inventory. This is because the records are updated in real-time which helps the purchasing team to plan in the exact quantity needed instead of carrying a lot of unnecessary inventory on hand. Automated features also help businesses to clearly define, organize, and locate all the spare parts according to their costs, purchase dates, and manufacturers- which in turn saves time and labor costs. 

3. Understand the Lead Times Required 

Some spare parts can take a long time to ship, especially with the supply chain and logistic problems faced by many industries these days. It is necessary to set reorder points to have critical assets’ spare parts on hand while allowing non-critical assets to be ordered only when needed. Risks must also be calculated based on two important factors, mean time to repair (MTTR), and mean time between failure (MTBF) to avoid extra costs that could be incurred from speed-up delivery and manufacturing process. 


There you have it, tips to optimize spare parts inventory management to achieve a balance between inventory cost and the risk of parts being out of stock. If there are any tips or know-how on how you manage the spare parts for your inventory, share them with us in the comment down below!