Maintenance Process Activities Overview

Part 10 – Performance management

RAMS&E srl

www.eni.it
 Contents

1. The reference framework

2. Preliminary concepts: maintenance monitoring and KPI
3. Eni basic Maintenance KPI set
4. Specific turnaround KPI set

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 1. The reference framework

3 eni corporate university

 Performance and service level management

Maintenance Management Process

Source:
msg‐man‐eni‐spa

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 Performance and service level management – Why?

One of the core principles of Maintenance MSG is continuous improvement.

Improvement Planning

Control Execution

No improvement is possible if you do not monitor how things are going on!

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 Performance and service level management – What?

Structuring and implementing an effective maintenance 
monitoring system, oriented towards evaluating and 
Aim improving the effectiveness and efficacy of processes, 
activities and resources.

 Definition of maintenance indicators

 Definition of target values
 Reporting and calculation of deviations

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 Performance and service level management – Who?

Central Technical  
• Definition of locally used Function
indicators
• Support to target  • Definition of strategic
definition indicators
• Preparation of reports  • Definition of target levels
relevant to indicators • Review of reports

Maintenance
Function

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 Definition of maintenance indicators

The definition of the core set of indicators is responsibility of the Central Technical Function.

The Maintenance Function at BU/Plant level can integrate this set with other indicators according to:

 specific internal needs

 specific international Standards/benchmarks

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 Definition of target values/1

The definition of target values is responsibility of the Central Technical Function.

Target values may be defined according to:

 strategic objectives

 historical data

 comparison with similar plants (if possible)

 the improvement potential of the service

 the desired graduality of improvement measures

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 Definition of target values/2

Targets must be site‐specific and consider environmental, organizational, product differences.

Targets must be aimed at continuous improvement.

The following general principles apply to target definition and benchmarking:

 targets shall be challenging enough, but reachable

 “best in class” plants should be reviewed in order to analyse best practices and management

 “worst in class” plants should be reviewed in order to find possible improvement areas

At the end of the year, targets for the next period will be defined during the budget estimation phase.

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 Reporting and calculation of deviations

The Maintenance Function is in charge of calculating actual values for the indicators and to produce the relevant
reports.

The reports must:

 allow for an analysis of maintenance performance

 be produced according to a predefined schedule

 be made available to the Corporate Technical Function

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 2. Preliminary concepts:
maintenance monitoring and KPI

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 Maintenance monitoring – KPI

Key Performance Indicators (KPI) are numerical indicators that can be used to:
 summarize information relevant to Maintenance in a compact, easily understandable
way
 identify trends (e.g. degradation of equipment)
 prioritize possible corrective actions.

Two different types of KPI can be defined:

 Lagging indicators, i.e. those which reveal the evolution of a process after it has occurred;
 Leading indicators, i.e. those which anticipate the evolution of a process.

In case a CMMS is properly implemented and constantly updated, Maintenance KPI should rely on
data stored in the CMMS so that their calculation can be automated.

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 Lagging indicators

In order to define a lagging indicator:
 Identify goals that the Maintenance should achieve (e.g. in terms of plant availability, safety,
operational costs and so on)
 Set a lagging indicator to directly show whether or not you are achieving the outcome. If the
outcome has been clearly described it should be possible to just use one indicator.
Lagging indicators show whether the outcome has actually been achieved. 

E.g. for plant inspection and maintenance: “The number of 
Lagging indicator failures or breakdown of safety critical plant or equipment due 
to components wearing out”

Within the candidate of lagging indicators, prioritize them and select one of them for each
outcome to be achieved.

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 Leading indicators

For each Maintenance goal, Leading indicators should be implemented as well, in order to 
show  that system is operating as intended.
Leading indicators highlight whether Maintenance is operating as designed (i.e. the 
prerequisite for achieving Maintenance required outcomes).

E.g. for plant inspection and maintenance: “The percentage of 
Leading indicator safety critical plant inspected to schedule”

Follow up adverse findings to rectify faults in the management systems.

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 Leading indicators ‐ Tolerance

Set a tolerance for each leading indicator. This represents the point at which deviation in
performance should be flagged up for attention of senior management. The tolerance may be set a
zero, this means that 100% of actions must be completed on time.
Tolerance

Deviated beyond 
Acceptable Acceptable

Follow up deviations from tolerances. The main aim of a performance information system is to 
indicate where process control management systems have deteriorated or are not delivering the 
intended outcome.

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 KPI – Examples

Can you provide some examples of leading/lagging indicators?

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 KPI – Examples

Lagging indicators:
 Equipment availability
 Maintenance cost
 Equipment Failure Rate/MTBF
 Number of failure impacting on safety

Leading indicators:
 Number of Preventive tasks performed on schedule
 Number of CBM tasks performed on schedule
 Maintenance backlog
 Equipment efficiency

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 KPI – What about the data?

In case a CMMS is in place, CMMS feedback should be used for calculating KPI.

Maintenance
Management
Maintenance Plan Maintenance KPI
Maintenance Management
Maintanance
CMMS
program and data

Operational data Work Orders

Maintenance activities execution

Execution
Activities
execution
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 3. Eni basic Maintenance KPI set

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 Applicable Company Standards

Professional Operating Instruction

opi‐man‐007‐e&p – Key Performance Indicators
(KPI) for maintenance management
 KPI to be measured
 Guidelines for target definition
 Data collection and reporting

Source:
opi‐man‐007‐e&p

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 Maintenance KPI categories

Eni basic Maintenance KPI system is made up of three KPI categories:

 Efficiency, i.e. related to economic parameters

 Effectiveness, i.e. related to technical parameters

 Organizational, i.e. related to WO and manhours

Note: as previously explained, other KPI may be defined by the Maintenance Function in addition to the basic ones

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 Efficiency KPI

Total maintenance cost per production unit Total maint. costs trend against budget

Yearly:

Pconsolidated is expressed in BOE.
Monthly (1 ≤ i ≤ 12):
Oper. maintenance cost per production unit

Pconsolidated is expressed in BOE.

Source:
opi‐man‐007‐e&p

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 Effectiveness KPI

Technical availability of equipment Production losses due to maintenance

Production losses due to PM:
𝑃
𝐹
𝑃
tdown includes downtime due to both CM and 
PM.
Production losses due to CM:
𝑃
𝐹
𝑃
Note: these KPI are not covered by opi 007 
since they are in Production scope, even if 
used for Maintenance monitoring

Source:
opi‐man‐007‐e&p

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 Organizational KPI

Ability to perform the maint. work program Ability to perform scheduled PM hours

Ability to perform the PM work program Inability to perform the program on SCE

CM hours against total maint. hours

Source:
opi‐man‐007‐e&p

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 4. Specific turnaround KPI set

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 Turnaround KPI classification

Company Professional Operating Instruction opi‐ope‐002‐eni‐spa defines a specific set of KPI for monitoring
turnarounds. They are classified according to the phase they are applied to:

 Preparation phase

 Execution phase

 Close‐out phase

Note 1: in the following, only KPI relevant to maintenance proper will be considered. The OPI defines also other
KPI, e.g. related to safety, which will not be treated.

Note 2: only the minimal set of required KPI is described in the following, additional ones can be calculated

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 Preparation phase

TA preparation progress Late scope
Actual progress vs. planned progress,  Manhours added after work scope freezing vs. 
calculated for: total planned manhours
• each macro‐activity
• the overall turnaround

KPI above should be calculated throughout the preparation phase twice a week.

Source:
opi‐ope‐002‐eni‐spa

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 Execution phase

TA execution progress Unplanned work
Actual progress vs. planned progress,  Manhours required for covering unplanned 
calculated for: activities vs. total planned manhours
• each macro‐activity
• the overall turnaround

KPI above shall be calculated throughout the execution phase daily.

Source:
opi‐ope‐002‐eni‐spa

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 Close‐out phase

Production loss variation TA duration optimization
Actual production loss vs. budgeted production  Actual duration vs. budgeted duration
loss

Cancelled work TA cost
Cancelled manhours vs. total planned  Actual cost vs. budgeted cost, calculated for:
manhours • each macro‐category (e.g. materials, 
logistics and so on)
• the overall turnaround

Source:
KPI above shall be calculated once and included in the Close‐Out Report. opi‐ope‐002‐eni‐spa

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 Question time!

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Maintenance Process Activities Overview
Part 11 – Spare parts management

RAMS&E srl

www.eni.it
 Contents

1. The reference framework

2. Definitions and classification
3. Spare parts coding
4. Spare part workflows
5. Stock level definition
 Exercise: stock level definition

33 eni corporate university

 1. The reference framework

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 Planned/unplanned activities execution

Maintenance Management Process

Strictly speaking, spare parts management is not covered in the Maintenance MSG as part of the Maintenance
process. However, the importance of proper spares management is remarked at some points.

As far as unscheduled activities management is concerned:

To that end, a critical aspect is the availability of spare parts [...] It is therefore important that 
particular attention is placed upon materials management policies. 

Moreover, Maintenance Engineering duties include the following points:

Technically support the functions in charge of the implementation of material management and 
procurement, through the standardisation of spare parts and the definition of the level of stocks.

Planning materials and spare parts management.
Source:
msg‐man‐eni‐spa

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 Applicable Company Standards

Company Specification
1012.SMESIN.RWP.0 – Methodology for material
coding
 Material Classes
 Rules for Company coding

Source:
1012.SMESIN.RWP.0

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 Applicable Company Standards

Company Technical Standard

28015.ENG.MNU.STD – Spare parts management
procedure
 Types of spare parts
 Responsibilities during Design and Commissioning
 Standardized SPIR form

Source:
28015.ENG.MNU.STD 

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 2. The reference framework

Company Standard
22012.MAN.GEN.SDS – Guideline for Maintenance
operating procedures
 Workflow during Operations
 Responsibility and interfaces
 Covers both Maintenance Management and
Material Management

Source:
22012.MAN.GEN.SDS

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 2. Definitions and classification

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 Spare parts

 Spare part: item intended to replace a corresponding item in order to retain or

maintain the original required function of the item [BS EN 13306:2010]

 Stocking spare parts may be considered uneconomical since:

 the parts might never be used
 the parts might not be stored properly, leading to defects
 holding spare parts has associated costs
 parts may be available when needed from a supplier

 Companies need to properly plan and manage their service parts inventory to achieve
optimal availability with minimal costs.

 Spare part management is the process that companies use to ensure that right spare
part and resources are at the right place (where the broken part is) at the right time.
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 Start‐up vs. Operational spares

Commissioning / Start‐up spare parts Operational spare parts

Spare parts required to enable uninterrupted  Spare parts required for the continuous 
installation and start‐up of the equipment  operation of the plant after the completion 
needed up to the performance test of the  of commissioning activity, for possible use 
plant. during the lifetime of the equipment.

This type of spare parts, if necessary, shall be  These parts may fail in use (there is no 
ordered as part of the base Purchase Order  planned replacement interval) and 
and delivered to site along with the parent  replacement is part of a corrective 
materials and equipment and the necessary  maintenance action or of an overhaul 
special tools. scheduled as a result of monitoring or 
planned maintenance.

Source:
28015.ENG.MNU.STD 

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 2Y Operational spares

Operational spare parts

Spare parts required for the continuous  2Y Operational spare parts
operation of the plant after the completion of 
commissioning activity, for possible use during  Also known as “initial spares”, these spare 
the lifetime of the equipment. parts are required for the continuous 
operation of the plant for the first two years 
of operation.
These parts may fail in use (there is no planned 
replacement interval) and replacement is part of 
a corrective maintenance action or of an  This classification is related to parts that 
overhaul scheduled as a result of monitoring or  encounter wear, corrosion, erosion or 
planned maintenance. deterioration in normal service and that can 
be reasonably expected to be required 
during the first two years of operation.

Source:
28015.ENG.MNU.STD 

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 Insurance spares

Insurance spare parts

Parts, assemblies or complete items of 
equipment not subject to deterioration by 
normal use, but failure of which is critical for 
continued and safe operation of the 
equipment or plant.

These are specific spare parts which, 
although acknowledged to have a long life or 
a very small chance of failure, have long 
delivery time. Therefore, they may cause a 
prolonged shutdown and consequently 
unacceptable production losses or costs.

Source:
28015.ENG.MNU.STD 

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 Capital spares

Insurance spare parts

Parts, assemblies or complete items of  Capital insurance spare parts
equipment not subject to deterioration by 
normal use, but failure of which is critical for  They are insurance spare part having high 
continued and safe operation of the equipment  value. They may be components or 
or plant. complete units (e.g. complete pumps, large 
valves, motors).
These are specific spare parts which, although 
acknowledged to have a long life or a very small  Due to their high value (and local tax 
chance of failure, have long delivery time.  regulations) it may be an advantage to 
Therefore, they may cause a prolonged  consider them as assets. Since capitalized, 
shutdown and consequently unacceptable  those spares are not normally considered in 
production losses or costs. the spare parts inventory.

Source:
28015.ENG.MNU.STD 

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 Consumables

Consumables

Spare parts with low value and required on a 

regular basis, e.g. because of wear, 
deterioration or routine usage.

They include lamps, paint, greases, lubricant, 
cleaning rags, filters, some piping 
components, bolts and so on.

Source:
28015.ENG.MNU.STD 

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 Stock vs. Non‐stock
Stock spare parts (or materials)
Stock Materials are materials that are kept in
inventory.
Non‐stock spare parts (or materials)
Non‐stock materials are materials that are  Direct issue material are materials or those
ordered regularly but are not part of
the in house inventory.
46
Automatically replenished spare parts
These are stock spare parts (or materials) for 
which a reorder point is defined, so that 
purchase requests can be generated 
automatically by the CMMS.
Direct issue spare parts (or materials)
 
parts or items that are ordered infrequently 
and are not under an existing contract.
Source:
28015.ENG.MNU.STD 
eni corporate university
 Repairable vs. Non‐repairable spares

Repairable spare parts Non‐repairable spare parts

Spare parts for which repair is technically  Spare parts which are not repaired but 
feasible and economically worth doing. simply scrapped and reordered in case of 
failure.
For instance, a complete spare pump or a big 
valve which can be replaced, then  Reuse can be not feasible (e.g. gaskets) or 
overhauled and kept in workshop for future  not economically justified (e.g. a small 
reinstallation. electrical motor, which could be repaired but 
it is cheaper to buy a new one).
This type of spare parts is normally traced 
individually in the CMMS and has an 
associated serial number.

Source:
28015.ENG.MNU.STD 

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 3. Spare parts coding

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 Company spare parts coding

Proper spare parts coding is the basis of any spare parts management strategy.

Any spare part available on the market is surely identified by one or more codes (e.g. OEM code, Vendor code
and so on), however univocal, Company‐defined coding is necessary in order to:

 take advantage of possible interchangeability

 enable optimization across different plants and BU

 increase efficiency in CMMS usage

All spare parts (Commissioning, Operational and so on) shall be coded.

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 Company spare parts coding/2

All Company codes for spare parts and materials are 14‐digits alphanumerical strings.

Different types of codes are available:

 Auxiliary code
 Bulk code
 Specific model code
 Specific spare part code
 Commercial spare part code

Coding procedures are defined at Corporate level, in order to ensure intercommunicability for all BU and
subsidiaries.

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 Auxiliary code

This is supposed to be a provisional code that may defined by the Manufacturer/Vendor while waiting for the
actual code from Company.

Source:
1012.SMESIN.RWP.0

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 Bulk code

Bulk codes are applicable to materials freely procurable on the market and normalized by international standards
or other regulations (e.g. piping components, cables and so on).

Source:
1012.SMESIN.RWP.0

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 Specific model code

This type of code is assigned to specific parts produced by a defined Manufacturer for a specific model of
equipment, not normalized as per industry standards/regulation.

Source:
1012.SMESIN.RWP.0

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 Specific spare part code

This type of code is assigned to specific parts produced by a defined Manufacturer, possibly applicable to
different models of equipment, not normalized as per industry standards/regulation.

Source:
1012.SMESIN.RWP.0

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 Commercial spare part code

This codes are applicable to materials freely procurable on the market, not necessarily normalized by
international standards or other regulations.

Source:
1012.SMESIN.RWP.0

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 Coding – Final remarks

Proper coding is neither possible nor useful if personnel in charge of Engineering and/or Operations do not:

 collect all information required for coding from Vendors/Manufacturers

 provide this information to the function in charge of coding in the required format

 request coding to the Corporate function in charge

 actually use this codes in the CMMS and more generally in the spare parts management process

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 4. Spare part workflows

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 Spare Parts: when?

Spare parts should be included in the scope of work of any project, starting from the design (Execution) phase.

Source:
28015.ENG.MNU.STD 

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 Spare parts workflow – Engineering

Necessary spare parts shall be available at plant start‐up,

therefore spare parts workflow begins during Engineering.

 Vendors recommend spare parts in the scope of their

Purchase Order

 Contractor shall integrate Vendor lists and perform

optimization

 Company will review and authorize spare parts

procurement

The main document in this phase is the SPIR (Spare Part

Interchangeability Record).
Source:
28015.ENG.MNU.STD 

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 The Company Commissioning SPIR form

SPARE PARTS INTERCHANGEABILITY RECORD "SPIR" FOR COMMISSIONING AND START UP SPARE PARTS
360VA001Z Ball Valve

SPIR No. REV

220PA001A Pump

220PA001B Pump

230PA002A Pump

230PA002A Pump

ITEM TAG No.

SHEET No. OF
(MAIN ITEM) A PROJECT BA BB

OWNER VENDOR'S NAME

AG VENDOR'S ISSUE DATE BC
TOTAL QUANTITY OF IDENTICAL PARTS INSTALLED

ENGINEERED BY ADDRESS
AH CHECKED BY
Free Field
(Second TAG
Codification or B
EQUIPMENT IDENTIFICATION

Item Criticality) CONTRACT No. PERSON IN CHARGE

AA APPROVED BY

MAIN P.O. DESCRIPTION SECTION

AE AB SPARE PARTS P.O. No.
ZZAA
XX2

YY1

YY2

SERIAL No.
XX1

C
MAIN PURCHASE ORDER No. PHONE No. / FAX No.
AF AC SPARE PARTS P.O. AUTHORIZATION DATE

E-MAIL ADDRESS
AD
CCC

MODEL OR TYPE
AAA

AAA

BBB

BBB

D
SPARE PARTS IDENTIFICATION
QUANTITY FOR COMMISSIONING AND START UP

PRICE
RELEVANT DOCUMENT No.

DELIVERY TIME
UNIT AMOUNT
EQUIPMENT SUB Business unit PURCHASED

( IN WEEKS)
CHARA CTERISTIC
SPIR POS. No. ORIGINAL ORIGINAL VENDOR UNIT of RECOM M END. ENGINEER. OPERA TION WEIGHT
ITEM No. E (from 0001)
DESCRIPTION OF PARTS MATERIAL
MAKERS NAME MAKERS PART No. CODE No
codification
MEAS. B y VENDOR RECOM M END. RECOM M END.
QUANTITY
[kg]
DIM ENSION OBSOLESCENCE G/S SHELF LIFE

POS. No.
(approved) [m]
(Miap code)

PAGE
CURRENCY
DRAWING No. (US$ or EURO)

No. OF UNITS F 1 1 1 1 5 I J K L M N O P Q R S T U V Z A1 X Y Z1 Z2 Z3 A2 A3 A4
PER ONE UNIT
QUANTITY OF

2 2 2 2 8 0002 Mech Seal NA COMPANY 1 BW ooo23 RRR001 5-8 11111 EA 2 2 2 2 S 2 30 60,00

EQUIPMENT

COLUMN A-E
INSTALLED

SHOWN IN
PARTS

OF

G 6 30 0005 Seal AISI 616 COMPANY 3 SSSS32 WWWW 10-11 UUUU-1111 EA 1 1 1 1 S 2 20 20,00

1 1 2 0006 Filter NA COMPANY 3 SSSS38 WWWW 6-7 2222 EA 1 1 1 1 G 4 10 10,00

Source:
28015.ENG.MNU.STD 

60 eni corporate university

 The Company 2Y Operational SPIR form

SPARE PARTS INTERCHANGEABILITY RECORD "SPIR" FOR 2 YEAR OPERATING AND CAPITAL SPARE PARTS
360VA001Z Ball Valve

SPIR No. V- REV 2

220PA001A Pump

220PA001B Pump

230PA002A Pump

230PA002A Pump

ITEM TAG No.

SHEET No. OF
(MAIN ITEM) A PROJECT BA BB

OWNER VENDOR'S NAME VENDOR'S ISSUE DATE

AG BC
TOTAL QUANTITY OF IDENTICAL PARTS INSTALLED

ENGINEERED BY ADDRESS CHECKED BY

AH
Free Field
(Second TAG
EQUIPMENT IDENTIFICATION

Codification or B
Item Criticality) CONTRACT No. PERSON IN CHARGE APPROVED BY
AA

MAIN P.O. DESCRIPTION SECTION SPARE PARTS P.O. No.

AE AB
ZZAA
XX2

YY1

YY2

SERIAL No.
XX1

C
MAIN PURCHASE ORDER No. PHONE No. / FAX No. SPARE PARTS P.O. AUTHORIZATION DATE
AF AC

E-MAIL ADDRESS
AD
CCC

MODEL OR TYPE
AAA

AAA

BBB

BBB

D
SPARE PARTS IDENTIFICATION QUANTITY FOR 2 YEARS OPERATION
CAPITAL SPARES

PRICE

DELIVERY TIME
RELEVANT DOCUMENT No. RECOM M END. B y VENDOR
EQUIPMENT SUB Business unit

( IN WEEKS)
PURCHASED PURCHASED CHA RA CTERISTIC
SPIR POS. No. ORIGINAL ORIGINAL VENDOR UNIT of ENGINEER. OPERA TION RECOM M END. ENGINEER. OP ERA TION WEIGHT OB SOLESCENC UNIT AMOUNT
ITEM No. E (from 0001)
DESCRIPTION OF PARTS MATERIAL
MAKERS NAME MAKERS PART No. CODE No
codification MEAS. RECOM M END. RECOM M END.
QUANTITY B y VENDOR RECOM M END. RECOM M END.
QUANTITY [kg]
DIM ENSION
E
G/S SHELF LIFE
(approved) (approved) [m]
(Miap code)

PAGE

POS.
CURRENCY

No.
DRAWING No. Quantity fo r PM Quantity fo r CM
(US$ or EURO)

No. OF UNITS F 1 1 1 1 5 I J K L M N O P Q R S T U1 U2 V W X Y Z A1 A2 X1 Y1 Z1 Z2 Z3 A3 A4 A5
INSTALLED PER ONE UNIT OF

2 2 4 0001 Bearing NA COMPANY 1 RR004 RRR001 1 3-7 88888 EA 4 4 5 5 5 0 0 0 0 N G 3 90,00 450,00 8

EQUIPMENT SHOWN IN
QUANTITY OF PARTS

2 2 2 2 8 0002 Mech Seal NA COMPANY 1 BW ooo23 RRR001 5-8 11111 EA 6 4 7 7 7 0 0 0 0 N S 2 50,00 350,00 6
COLUMN A-E

2 2 4 0003 Bearing NA COMPANY 2 RR005 TTT004 3 3-7 66666 EA 3 2 5 5 5 0 0 0 0 N G 3 200,00 1.000,00 6

G
1 1 1 1 4 0004 Impeller AISI 616 COMPANY 2 FR901N RRR001 10 1111 EA 0 0 0 0 0 2 1 1 1 N S 10 5.000,00 5.000,00 6

6 30 0005 Seal AISI 616 COMPANY 3 SSSS32 WWWW 10-11 UUUU-1111 EA 1 1 2 2 2 0 0 0 0 Y S 2 50,00 100,00 4

1 1 2 0006 Filter NA COMPANY 3 SSSS38 WWWW 6-7 2222 EA 1 2 3 3 3 0 0 0 0 N G 4 100,00 300,00 4

Source:
28015.ENG.MNU.STD 

61 eni corporate university

 Spare parts management – Operations

Reservation and usage of available spare parts is covered

by WO workflow (already discussed).

Purchase follows different workflows for:

 New stock/Non‐stock materials
 Direct Issue materials
 Replenishment

Materials managed this way include also goods which are

not spare parts (e.g. lubricants).

Source:
22012.MAN.GEN.RWP

62 eni corporate university

 New stock/Non‐stock material

Source:
22012.MAN.GEN.RWP

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 Direct issue material

Source:
22012.MAN.GEN.RWP

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 Material replenishment

Source:
22012.MAN.GEN.RWP

65 eni corporate university

 5. Stock level definition

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 Inventory Management Policy

 Spare Parts Management (for consumables) includes the definition of the

Inventory Management Policy that answers to the following main questions:
 When parts should be ordered
 How many parts should be ordered

 The final goal is to guarantee the required availability level of the system

67 eni corporate university

 Reorder point

 The reorder point (ROP) is the 
level of inventory when an order 
should be made with suppliers to 
top the inventory up.

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 Economic order quantity

 Economic order quantity (EOQ) is the quantity to order, so that the sum of ordering cost and 

holding cost is at its minimum. These costs will be equal to one another at the minimized 
cost point.

Sy Co = ordering cost per unit
EOQ ‐
2 x Co x
Ch
  Sy = usage in units per year
Ch = holding cost per unit

69 eni corporate university

 EOQ as minimum of total costs

1 – Ordering costs

𝑆𝑦
Co x
𝑞

2 – Holding costs
𝑞
Sy Ch x 𝐴
EOQ 2 x Co x
Ci
  2

70 eni corporate university

 Ordering cost

 Ordering costs are all costs associated with the processing of a purchase, from creation to 
receipt; they do not include purchase cost of the items themselves (calculated simply as the 
unit price times the number of spares bought).
 They can be considered as proportional to the amount of orders and not to the ordered 
quantity.

𝑆𝑦 • Co = ordering cost per unit

Co x
𝑞 ‐ • Sy = usage in units per year
• q = ordered quantity

71 eni corporate university

 Holding cost

 Holding cost depends on the average amount of items physically present in the company 
inventory. 
 Inventory holding costs are related to the costs of managing the inventory and are regularly 
expressed per item, per unit time. 
 They include:
 capital costs of the investment tied up in inventory, 
 operational costs of warehousing, 
 deterioration (or monetary depreciation) of the items. 

𝑞 • Ch = Holding cost per unit
Ch x
2 ‐ 𝐴   • q = Ordered quantity
• A = attention level

72 eni corporate university

 Spare part demand pattern

 When estimating the expected spare part usage, it is useful to study the demand pattern.
 Possible criteria for this analysis are:
 Demand predictability
 Predictable/Unpredictable demand (Preventive/Corrective maintenance)
 Volume 
 Low demand/High demand (Commonality)
 Demand variability
 Steady/Seasonal/Discontinuous and non uniform demand (Inventory review)

73 eni corporate university

 Item with steady demand structure

Availability Company warehouse Material ordered but

not present in the 
warehouse

ROP ROP

Months Months

 Items which mostly takes place in preventive maintenance are likely to have a known and 
steady demand structure.
 For those items the average amount present in the company inventory is equal to EOQ/2

74 eni corporate university

 Item with discontinuous demand structure

 Spare parts of corrective maintenance depends on the frequency of the failures which is the 
source of randomness.

 For those items the average  Availability
amount present in the company 
inventory depends on the safety 
stock.

ROP
Months

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 Safety stock

 Safety stock is a term to describe a level of extra stock that is maintained to mitigate risk of 
stock‐out or out‐of‐stock.
 The causes for out‐of‐stocks due to uncertainties in supply and demand. 
 Adequate safety stock levels permit business operations to proceed according to their plans. 
 The optimal size of the safety stock correspond to the stock that minimize two category of 
costs:
 Holding costs (increase with the increase of the safety stock)
 Shortage costs (decrease with the increase of the safety stock)

76 eni corporate university

 Shortage costs

 Shortage costs are the costs that occur in case of stock‐out.

 In industries characterized by heavy utilization of equipment and machinery, such as mining, 
oil & gas, utilities, transportation, adequate stockholding of critical spare parts becomes 
essential to avoid the effects of shortage costs.

 Insufficient stocks affect overall performance of physical assets, as lack of spares may result 
in gross penalties, lower availability or increased operational risks.

 Theoretically, they can be evaluated by the downtime costs of the system related to the 
failure to be corrected by the use of the part.

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 Safety stock definition

 The safety stock is defined depending on the experience or the specific constraints in a 
factory.

 For critical/expensive parts, it may be evaluated performing a kind of “risk analysis”, 
considering the risk of downtime due to stock‐out

 It is important to perform a periodic review of assumption and constraints to avoid the risk 
of wrong evaluation.

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 Exercise: stock level 
definition

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 Question time!

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 Thank you!

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