MAINTENANCE &

SAFETY
Anil Jindal
Department of Mechanical Engineering
BITS Pilani -Pilani Campus

BITS Pilani
Pilani Campus

Asset and spare parts management

Lecture 7
Chapter 5

Introduction
Asset management, broadly defined, refers to any system
that monitors and maintains things of value to an entity or
group.
It may apply to both tangible assets such as buildings and
to intangible concepts such as intellectual property and
goodwill.
Asset and spare parts management is critical for effective
maintenance of plant and equipment.
Assets include human assets, physical assets and financial
assets.
The inventories stored for smooth operation also fall into
the category of assets.

Asset Management Function in

21st Century Organizations

Before proceeding with management of spare parts for

effective maintenance to be carried out a brief outline of
how overall asset management is carried describing the
three basic function and there seven individual elements.
First, the financial asset management is discussed.
Subsequently, the human resources management and
lastly the physical asset management are enumerated.

Financial Asset Management

The role of finance department is very much a supportive

in nature.
It sets the procedures that are to be followed with respect
to finance by the people involved in the value addition
chain, ensures that they follow those procedures, disposal
of surplus funds, and keeps the financial status up to date.
It also arranges for the acquisition of additional financial
assets when required.
The finance department merely ensures that the
organization has the financial wherewithal to allow the
value adding process to continue to function in
accordance with the mission statement established by
principal stake holders.

Human Asset Management

The human resources department also provides support

function.
Like the finance department, it also makes the policies and
procedures that are to be followed by the employees
through managers of the value chain the ensures that they
follow those procedures, and keep the record of human
resources.
It also assists with the acquisition and deployment of
additional human resources when required.
It usually consists of a small number of qualified
specialists.
The human resource department ensures that the
organization has the people to allow the value addition
process as per the mission statement.

Physical Asset Management

These tasks are once again very much support functions.

They involve themselves in setting procedures to be
followed with respect to physical assets by managers of the
value chain.
They further ensure that the procedures are followed and
keeping overall performance records.
They include the acquisition and deployment of additional
physical assets when required.
Given the striking similarities between these tasks and
those of the other two main value chain support functions, it
may be taken for granted by those who are not connected
with the value chain for the physical asset management
organization would be small, focused and tightly organized,
and equally influential.

Physical Asset Management

In fact the physical asset management consists of the
following departments:

Maintenance (considered to be the prime function in physical asset

management)
Purchase or procurement
Stores management
Operations department whenever they are called upon to do daily or
autonomous maintenance functions.

Conventional Systems of
Ordering Spare Parts and Materials

This deals with the setting and control of the level of

maintenance spares, since spares are one of the
resources in maintenance, viz., spares, equipment and
labor.
As with any other activity, normal objectives of spares
control is the minimization of the sum of the associated
costs, direct and indirect.
Generally, the problem in spare parts control is to be
balance the costs of holding against the cost of running
out.

Conventional Systems of
Ordering Spare Parts and Materials
Inventory control theories attempt to determine those
procedures, which will minimize the costs of:
Running out of stock (Production loss due to stoppage,
cost of temporary hire etc.)
Replenishing stock (per item, and inverse function of order
quantity)
Holding stock (interest on capital, insurance, depreciation
over a wide range of stock levels, wages, light, heat,
storage facilities, rent etc.)

Economic Order Quantity

Simplest of the techniques, being followed for a number of
years in the industry is explained hereunder.
Economic order quantity is the optimum quantity is the
optimum quantity of material that can be ordered each time
so that the total cost of ordering and holding them remains
a minimum. Mathematically, the expression for the
optimum order quantity can be derived as follows.
Underlying assumptions

The demand for the item is known

The lead time is known and fixed
The receipt of the order occurs in a single instant
Quantity discounts are not calculated as part of the model
Stockouts or shortage do not occur

The following are the variables:

Q = optimal order quantity
C= cost per order event (not per unit)
R = monthly demand of the product
P = purchase cost per unit
F = holding cost factor, the factor of the purchase cost that is
used as the holding cost (this is usually set at 10-15%, though
circumstances can require any setting from 0 to 1)
H = holding cost per unit per month (H = PF)

EOQ
The single item EOQ formula can be seen as the minimum point of
the following cost function:
Total cost = purchase cost + order cost + holding cost, which
corresponds to:

Taking the derivative of both the sides of the equation and setting
equal to zero, one obtains

The result of this differentiation is:

Solving for Q:

Fig 1. Finding an optimum balance in ordering

Figure 2 shows the relationship amongst the ordering costs cure,

the holding costs curve, the total costs curve and the economic
ordering quantity

Fig 3 Typical EOQ model

 On the issue of quantum of safety stocks to be

retained (as mentioned in fig 3 and reorder point,
managers may think of using their judgment based
on the experience of surge in demand, delays in
order processing and shipment delays.
Calculation of safety stock has two dimensions:
Unexpected spike in sales
Delay in recording process
Shipping may cause unfulfilled problems

Example
John sells a product for $10 and it cost $5 to produce (UVC) and
has fixed cost (FC) of $25,000 per year
How much will he need to sell to break-even?
How much will he need to sell to make $1000?

BITS Pilani, Pilani Campus

Solution
Revenues Variable cost Fixed cost = OI
(USP x Q) (UVC x Q) FC = OI
$10Q - $5Q $25,000 = $ 0.00
$5Q = $25,000
Q = 5,000
What quantity demand will earn $1,000?
$10Q - $5Q - $25,000 = $ 1,000
$5Q = $26,000
Q = 5,200

BITS Pilani, Pilani Campus

Graphical analysis:

Dollars
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

Total Cost Line y = VC*Q + FC

Total Revenue
Line = USP * Q

BEP

1000 2000 3000 4000 5000 6000

Quantity

Graphical analysis: Cont.

Dollars
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

Total Cost Line

Total Revenue
Break-even point
Line

BEP

1000 2000 3000 4000 5000 6000

Quantity
Any quantity sold in the red colored region will produce a loss, while any quantity in the green region will produce a positive cash flow

Problem
The following information is available for two machines:
Item

Capstan Lathe

Automatic (Single Spindle)

i.

Tooling Cost

Rs.300

Rs.300

ii.

Cost of Cams

Rs.1500

iii. Material cost per piece

Rs.2.50

Rs.2.50

iv. Operation labour cost

Rs.5 per hour

Rs.2per hour

v.

5min

1min

vi. Setting up labour cost

Rs.20 per hour

Rs.20 per hour

vii. Setting up time

1 hour

8 hour

viii. Machining overheads

(setting and operation)

300%of (iv)

1000%of (iv)

Cycle time per piece

Find the break-even quality for a component which can be

produced on either the capstan lath or the single spindle
automatic.
BITS Pilani, Pilani Campus

Solution

BITS Pilani, Pilani Campus

BITS Pilani, Pilani Campus

Two-Bin System of Material

Procurement
The two-bin system is quite advantageous for ordering
everything from certain product inventory items (those that
have a relatively stable usage, now and in the foreseeable
future) to consumable supplies, including office products.
The two-bin system is exactly a system that requires two
storage containers.
Each container will hold a predetermined quantity of the
same material.
The quantities may be the same, or one bin may hold a
larger quantity than the other.

Two-bin system working

Two bins of items are created.

The first bin is stacked on top of, or in front of, the second
bin.
A recorder card is placed on the bottom of each bin.
Material is drawn from the first (or most accessible) bin
only.
When the first bin is empty, it is exchanged with the second
bin.
The recorder card is used to replace items in the first bin.
Material is then drawn from the second bin while waiting for
receipt of the material on order.

Two-bin system working

When the new material arrives, it is placed in the empty
bin, and the reorder card is returned to its proper place in
the bin.
The procedure is continued, with material being selected
from one bin until it is depleted.
The material is then replenished through use of the
reordering card.
As long as the quantity of the material in each bin is the
same, one bin can be first depleted and the order placed
for the replenishment amount; then material can be
depleted from the second bin, and so forth.

Two-bin system

Material Management Manual

Industries and maintenance organizations require to

document the policies, procedures, inventory levels
desired, formats for purchase requisitions and other
information including the type of management reporting so
as to follow an uniform practices throughout the
organization.

Further, such practices will enable easy data storage and

retrieval through computer systems.

Proven and New Approaches in

Effective Asset / Spare Parts
Management Programme

Proper planning and control of spare parts inventory is a

critical component of an effective asset management
programme.
If the right parts are not on hand when needed for routine
maintenance or repairs, downtime is prolonged. If too
many parts are on hand, the enterprise absorbs excessive
costs and the overhead of carrying the inventory.

Item Search
It can be difficult experience for a maintenance planner
who is not familiar with the item numbers to locate the
appropriate part in a computer system. Nouns and
qualifiers are a way of simplifying a search.
A noun is a simple, meaningful name for the item, for
example pump. The qualifier adds more detail, such as
hydraulic. A search on this combination will bring up all
hydraulic pumps in the stock item master file.

Fig 7 Block diagram showing the relationships between

production, assets and maintenance

ABC and XYZ Analyses

Generally accepted 80:20 rule illustrates that approximately
80 percent of any storerooms volume is associated with
only 20 percent of the items in inventory.
It is important to pay extra attention to that critical 20
percent.
ABC and XYZ codes are commonly used to identify those
parts. The codes are assigned based on value or quantity
of stock movement, and each code will have an associated
upper limit. Highest value parts, for example those that
cost more than Rs. 2.5 lakh each, can be assigned the
ABC code of A, and fastest moving parts can be assigned
an XYZ code of X.

Fig 8 ABC analysis plot showing the accumulated value vs.

Item nos (not to scale) and volume

Fig 9 Regular ABC curve

Automatic Replenishment

Automating the process related to reorders has generated

proven savings.
Suggested reorder functionality creates requisitions based
on reorder points (ROP) and reorder quantities (ROQ) that
are stored in the inventory record. Once inventory levels
for a part fall below the reorder point threshold, a
suggested reorder is placed for the reorder quantity, which
in turn creates a requisition.
This saves time and prevents the delays and errors that
can occur with manual purchasing processes.

Vendor Service Levels

Capturing supplier service level data within the inventory

record helps bring to light the most efficient, dependable,
and cost-effective vendors.
Preferred suppliers can be identified based on historical
lead times, pricing, quality, number of short or overshipments, how often goods are received damaged,
frequency of back orders, and other criteria.
Preference can be given to these vendors in the
procurement process.

Multistores Capability
A multi stores capability enables an enterprise-wide view of
spare parts inventory that is stored at more than one
warehouse or off site by a third party.
In a multi-plant environment or when maintenance
departments are distributed, visibility into inventory at the
various storerooms permits monitoring of parts availability
and service-level agreements across the enterprise as a
whole or on an individual basis.

Just-in-time (JIT)

JIT replenishment is a popular but sometimes controversial

concept of storing minimal inventory in the warehouse and
replenishing it only when and as needed just in time.
Although enabling significant carrying cost-savings, there
are risks involved.
The best replenishment formulas cannot predict an
emergency breakdown, a vendor going out of business, a
carrier going on strike, or a sudden shortage of raw
materials.

Just-in-time (JIT)
Being too conservative in stocking levels can result in the
inability to repair equipment in a timely manner or to keep
the production line running
In asset management, the criticality of a part determines
whether it is a candidate for JIT.
A criticality code in the EAM inventory record can be used
to identify these items.

Lean Manufacturing
This is a similar concept with a broader scope. Lean
manufacturing means doing more with less, cutting time to
market, and eliminating unnecessary processes.
This impacts maintenance and the storeroom by stressing
improved, efficiencies, better planning, and reduced costs
and running an operation with far less inventory.

New Approaches

Purchasing through the Internet is an effective means of

acquiring indirect items and hard-to- find, inexpensive, or
short-notice spare and replacement parts.
Almost all OEMS, brokers, distributors, manufacturers,
and machine shops have web ordering capabilities.
Most companies can purchase materials online.

Mobile Computing And Use Of Bar Code

Technology For Spare Parts Tracking And Monitoring

This is being more popular in the advanced countries and

is gaining ground in India as well.
Warehouse personnel can conduct cycle counts without
halting operations by automating Parts identification with
bar codes.
Wireless technology can capture inventory through bar
codes and transmit the data in real time to the corporate
network.
Critical material availability is easier to track, resulting in
timelier asset management.

Mobile Computing And Use Of Bar

Code Technology For Spare Parts
Tracking And Monitoring
With a wireless system, real-time information flows
throughout each key process in the warehouse, including
receiving, put-a-way or shelving, picking issues/returns,
and bin movement activities.
For one energy company that implemented mobile asset
management, errors were slashed, pick time was cut by
one-third, on-time picks were improved from 64 to 98.89
percent, and overhead costs were reduced by 20 percent.

Barcode Solution
Like a library system, the programme tracks the item,
where it is, how often it is used, and when it is due back.
Reporting capabilities offer information on inventory value,
asset locations, and equipment usage. In addition, the
radio frequency scanners (the industry uses with the
system) mean that the operator is not chained to the
computer.
He can communicate with the PC in real time from
anywhere in the tool room.

Barcode Solution
Scanned data is sent to the database instantly, and
information about the status of both the equipment and the
employees can be accessed from the hand-held.
If, for example, the employee at the counter has an
overdue spare part or is not certified to use the item he is
trying to sign out, the PC will send that information to the
scanner instantly where it will be displayed on the screen.

Improved Communication

The system is proving to be of great benefit. The most

significant aspect is that the plant has a consistent method
of tracking spare parts as well as consumables in its entire
site.
This will result in a change in purchasing habits. Orders
are no longer going out just because one spare part runs
out of an item.
Instead, operators can use the networked system to check
for the item's availability in other parts of the plant.
In addition, by forcing operators to catalog their spare
parts, the system will help to create an accurate count of
its own assets.

New Attitudes

An attitude change accompanied the installation of the

spare part tracking system will bring in a sense of
accountability to the industry.
Generally, items may not have been returned for a number
of reasons.
The employee may have simply forgotten to return the
tool or a spare part they have drawn, or perhaps left it at a
job-site with the intention of using it later.
These items could be left unclaimed for months, or
perhaps mistakenly packed with a contractors equipment
and removed from the site altogether.

Additional Applications and Benefits

As labeling and cataloging process continues, the plant can
start using the system to track the industrys trucks (say).
This allows the staff to monitor how often the vehicles are
used, and if they are returned on time.
By introducing accountability and effective reporting
functions, as well as reducing the need for large annual
expenditures for asset purchases and rentals, the system is
expected to save a significant amount of money annually.
Such systems can be effectively utilized in large mines
where material handling dumpers and trucks are utilized in
large numbers.

Other Aspects
Key performance indicators (KPIs) are increasingly popular
decision support tools.
For example, an EAM (Advanced enterprise asset
management) solution can calculate a KPI on inventory
turns by dividing inventory expenditures by average
inventory level.
When problem areas are flagged, notification can be sent
automatically to the plant and storeroom managers for
escalation.
Other supply chain KPIs can include vendor performance,
obsolescence, items available but not used, supplier
pricing, and more.

Thanks You