Pooling: the best way to optimise your spare parts management
Editor’s Note:
Since first writing this article, little has changed – few companies have adopted a spare parts pooling strategy. At Sparrow, we believe this is low-hanging fruit, a quick-win for firms looking to optimize their manufacturing operations without incurring more costs.
After five years of learned experience, including talking with hundreds of professionals and operating in over 100 plants, we’ve decided to revisit this article with fresh eyes. We’ve rewritten it with a focus on the real issues that manufacturers face, and how spare parts pooling can help mitigate or entirely solve these problems. If we did our job well, this text should serve as a starting point for companies beginning their pooling journey, though even the basic outlines presented here can be implemented to positive results.
Spare parts management is difficult. There’s a tricky balance to be struck between accessing a critical spare part exactly when you need it (to minimize machine downtime) and keeping your inventory value as low as possible (to minimize working capital).
Most firms operate on the very slight probability that they’ll need a specific spare part for a specific machine at any given moment – but it’s a huge challenge to accurately model this exact probability.
One simple-to-implement workaround for this problem is spare parts pooling. From a statistical perspective, predicting when you might need a spare part is difficult with no or little data. By pooling supply and demand across sites (or organizations), you increase your access to both more data and more spare parts. This allows you to forecast more accurately – and source parts more efficiently if the models fail.
Compared to other systems, it’s a fairly simple system to put into place – and pooling is much more cost-effective. Despite that, it’s not implemented as widely as one would think, representing a huge missed opportunity for manufacturers. In this article, we’ll dive into the whys and hows of spare parts pooling!
What is spare parts pooling?
Spare parts pooling is a simple idea at its core: providing access to a shared stock of spare parts to different interested parties. This can be accomplished with an online spare parts “marketplace” system, for example.
Though many firms engage in ad hoc, informal pooling efforts, there are a few different categories of parts pooling:
Internal pooling
pooling all the spare parts within your company, across all your sites, in one virtual/real store room. This way, anyone who needs a spare part can access one internally at any given moment. Within internal pooling, there are three different options:
One level internal pooling
where all the parts are stocked centrally and issued upon request.
Hub and spoke internal pooling
where most parts are stocked in one location, with some critical items located at various sites.
Network internal pooling
a pool across multiple sites, without a "main" site for stocking.
External pooling
a pool with external parties outside your company. These may include other similar companies, suppliers of spare parts, or machine manufacturers. Participants in the pool may be either buyers of spare parts or sellers as well. Types of external pooling include:
Cooperative pools
participants know and agree to share resources with each other. For example, the IATP - International Airlines Technical Pool - a pool of over 100 airlines sharing aircraft recovery kits, aircraft parts and tooling, ground handling equipment, and manpower/facilities.
Open pools
members request and share parts anonymously, allowing you to source parts from anyone nearby who has them (even competitors!). Open parts pooling is one of Sparrow’s functionalities, for example.
1) Optimized inventory levels
One of the basic advantages of pooling is that it helps you better manage your spare part inventory levels. For most operations, individual part usage is erratic and hard to predict (in the business, they call this kind of demand “lumpy”). To compensate for the unknown demand, companies almost always stock more parts than they’ll ever need – while simultaneously never having enough for unusual situations. The following example illustrates the core of this problem:
Generally speaking, a company can’t know when exactly it will need a part, even with the best predictive models. They may assume they’ll only need a specific part every two years. All of a sudden, a series of malfunctions mean that five parts are needed ASAP. The likelihood that the company has enough of this specific part in the plant(s) where the machines break is very small, leaving them vulnerable to surprises.
To compensate for these eventualities, many firms overstock, buying more than needed all at once. This is expensive and unwieldy, and often doesn’t account for a given part’s usable shelf life. Companies can also run into issues with minimum purchase amount, wherein their need for a part is far lower than the actual sellable quantity, causing them to buy more parts than they likely need.
By opting for a pool-based spare parts management model, you pool the demand between participants. So instead of one company keeping more parts than it needs to minimize downtime, two companies can split the total parts between them and shift them as needed. When scaled up to include all the machines across plants or all the plants in the pool, everyone can stock fewer spare parts. Together, the participants will be closer to the optimal number of parts per the number of machines covered by the pool.
