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Spare Parts Sourcing
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Spare Parts Sourcing

What is Spare Parts Sourcing?

If you have ever purchased extra light bulbs just to be ready for the next time a bulb blew, you may have unwittingly performed spare parts sourcing for your household. Spare parts sourcing is the planning and implementation of strategies to ensure the cost-effective availability of spare parts in a company’s inventory. This can be handled in-house by a designated individual or department (depending on the size and scope of the operation), but can also be outsourced to an inventory management firm that specializes in strategic service management (SSM) or maintenance, repair, and operations (MRO). Spare parts are extra parts that may be needed to repair or replace a broken part, and are readily available when needed. Spare parts could be kept in stock to repair consumer goods, machines that manufacture these goods, or any number of other things used in the production of goods and services.

Economic Factors

There are several economic factors that must be considered when creating proper spare parts sourcing strategies:

What is the associated cost of keeping any given spare part in inventory?

There are overhead costs associated with keeping a spare part in stock. The part will need to be stored in a warehouse or other physical location, and steps must be taken to ensure the part is being stored properly to prevent defects or premature degradation. Depending on the nature of the spare part, it may be more cost effective to order when needed rather than keeping it available in stock.

What is the likelihood of the part failing?

Some spare parts inevitably never end up being used. This is somewhat of a waste of resources, but if the presence of the spare part added peace of mind to the customer(s) who potentially needed it, it is not a complete waste. One of the main reasons to keep spare parts in stock to begin with is to improve customer service in the event of a repair situation. Even if a spare part is never needed, if having it in stock can improve your customer service reputation, it’s not a complete loss. Parts that are more prone to failure should obviously be a higher priority than parts that rarely fail, but it’s also important to keep in mind the financial ramifications of the part failing, regardless of the probability that it would.

Is the cost of replacing the failed part greater than the cost of repairing the part, if repairing the part is even an option?

Not every part that breaks down or fails necessarily needs complete replacement. Sometimes, the part itself can be repaired. Other parts may always warrant a complete replacement. Determining the likelihood that a failed part will need total replacement instead of a repair, or which is more cost effective, must be a part of the company’s spare parts sourcing strategy.

What is the availability of the spare part in question?

If considering ordering the spare part on an as-needed basis, the spare parts sourcing strategist must consider the availability of the part. For example, if the part can be ordered and shipped in a relatively quick time frame it may be best to wait until the part fails, especially depending on the probability of failure for the part in question. If however, the part is only manufactured on an as-needed basis, it may take weeks, months, or even years before a company can secure a replacement. Knowing the future availability of a spare part, its forecasted demand, as well as how quickly the spare part will be needed are all very important factors to consider. What is the cost of not having the part in stock in the event that it becomes needed? If the part is needed to repair a broken consumer good, the cost of not having the part on hand may be small. It may hurt the company’s customer service reputation, but it won’t be costing the business a lot of money in and of itself. On the other hand, if the spare part is needed to repair a machine that manufactures consumer goods, a company may be hemorrhaging money and losing productivity while waiting for a replacement. Analyzing the cost of not having the part for a given period of time is a vital part of proper inventory planning and spare parts sourcing. What is the expected lifespan of the product in need of the spare part? Knowing how long a product or piece of equipment may need to be serviced would clearly affect the quantity of spare parts needed. If it’s a consumer good, are there warranties associated with the product that the company must fulfill? What is the expected failure rate for the part? Is the spare part in question in an industry that lends itself to obsolescence? For example, consider the cell phone industry. After a couple of years, most consumers would most likely just buy a new phone if their old phone were to break. Therefore, it would be silly for a company to plan on repairing a particular cell phone for too many years. If however, the consumer had an extended warranty on their cell phone, the company would want to guarantee their ability to satisfy the warranty claims. Knowing the expected lifespan of the product or system the spare part would be used for is another important factor to be considered.

What are the risks of outsourcing spare parts sourcing to a third party?

Outsourcing any part of a business’ supply chain management operations is no simple proposition. Like any chain, it is only as strong as its weakest link. That being said, a company interested in hiring a third party to manage their spare parts sourcing must be sure that they are adding a stronger link to their chain. Of course, there are risks associated, and a number of factors to consider when deciding if it is wise to outsource. The business that decides to outsource can find itself at the mercy of the company it hired. It is important to determine that the third party organization is equipped and experienced in the proper industries to prevent headaches for all involved parties. It is also extremely important that both parties are on the same page regarding quality control, logistics, and especially the integration of new policies to prevent complications before they arise.

What are the benefits of outsourcing spare parts sourcing to a third party?

Businesses often decide to outsource many aspects of their Supply Chain Management to a company that specializes in the field, including spare parts sourcing. A company that focuses its efforts on logistics and inventory management will likely have a lot more experience and expertise. Oftentimes, a third party inventory management company will assess the situation and analyze whatever systems the business currently has in place. With specialized software and skilled employees, the third party will likely discover many inefficient practices in place. A third party spare parts sourcing company may also have better relationships with spare parts suppliers and purchase a much higher volume of parts, typically resulting in lower prices. It is not unusual at all for a company to save hundreds of thousands of dollars or more simply by hiring a company to manage their spare parts sourcing or supply chain management needs. In addition to saving money, outsourcing spare parts sourcing to a third party can allow a business to focus its efforts on other worthwhile ventures, such as marketing or innovation.

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