9th IFAC Conference on Manufacturing Modelling, Management and

9th
9th IFAC
IFAC Conference
Control Conference on
on Manufacturing
Manufacturing Modelling,
Modelling, Management
Management and
and
9th IFAC
Control
9th IFAC Conference
Conference on
on Manufacturing
ManufacturingAvailable online
Modelling,
Modelling, at www.sciencedirect.com
Management
Management and
and
Control
Berlin,
9th IFACGermany, August
Conference on 28-30, 2019
Manufacturing Modelling, Management and
Control
Berlin, Germany,
Control Germany, August
August 28-30,
28-30, 2019
2019
Berlin,
Control
Berlin, Germany,
Germany, August
August 28-30,
28-30, 2019
2019
Berlin,
Berlin, Germany, August 28-30, 2019 ScienceDirect
IFAC PapersOnLine 52-13 (2019) 171–176
Maintenance, Repair, and Operations Parts Inventory
Maintenance,
Maintenance, Repair,
Repair, and
and Operations
Operations Parts
Parts Inventory
Inventory
Management
Maintenance, Repair, in the
and Era of Industry
Operations Parts 4.0
Inventory
Management
Management in
in the
the Era
Era of
of Industry
Industry 4.0
4.0
Management in the Era of Industry 4.0
Jing Chen, Oleg Gusikhin, William Finkenstaedt, Yu-Ning Liu
Jing
Jing Chen,
Chen, Oleg
Oleg Gusikhin,
Gusikhin, William
William Finkenstaedt,
Finkenstaedt, Yu-Ning Liu
Jing
Jing Chen,
Chen, Oleg
Oleg Gusikhin,
Gusikhin,

William

William Finkenstaedt, Yu-Ning
Finkenstaedt, Yu-Ning
Liu
Yu-Ning Liu
Liu
JingInsight
Global Data Chen, & Oleg Gusikhin,
Analytics, FordWilliam
Motor Finkenstaedt,
Company, Yu-Ning
Dearborn, MI Liu USA
48124,
Motor Company, Dearborn, MI 48124,
Global
Global Data
Data Insight
Insight &
& Analytics,
Analytics, Ford
Ford Motor jchen285@ford.com)
Company, Dearborn, MI 48124, USA
Global Data
Global (Tel:
Insight
(Tel:&
313-322-1053;
Analytics, e-mail:
Forde-mail:
Motor Company, Dearborn, MI 48124, USA
USA
Global Data
Data Insight
Insight & Analytics,
Analytics, Ford
313-322-1053;
&313-322-1053;
(Tel: Motor
Forde-mail: Company,
Company, Dearborn,
Dearborn, MI
jchen285@ford.com)
Motor jchen285@ford.com) MI 48124,
48124, USA
USA
(Tel:
(Tel: 313-322-1053;
313-322-1053; e-mail:
e-mail: jchen285@ford.com)
jchen285@ford.com)
(Tel: 313-322-1053; e-mail: jchen285@ford.com)
Abstract: This paper discusses the challenges in Maintenance, Repair, and Operations (MRO) parts
This paper
Abstract: This
Abstract: paper discusses
discusses the
the challenges
challenges in in Maintenance,
Maintenance, Repair,
Repair, and
and Operations
Operations (MRO)
(MRO) parts
parts
inventory
Abstract: management
This
This paper
paper and how the
discusses
discusses Industry 4.0 technologies
challenges in can beRepair,
Maintenance, leveraged
and toOperations
address them.(MRO)Additive
parts
Abstract:
inventory management
Abstract:
inventory management
This paper how the
and how
discusses
and the challenges
Industry
challenges
Industry 4.0 in
in Maintenance,
4.0 technologies
technologies can be
Maintenance,
can beRepair,
Repair, and
leveraged
and
leveraged toOperations
to address them.
Operations
address (MRO)
them.
(MRO) parts
Additive
parts
Additive
manufacturing,
inventory
inventory Internet and
management
management of Things
and how
how (IoT), big
Industry
Industry 4.0
4.0 data analytics,can
technologies
technologies machine
can be
be learning,to
leveraged
leveraged to and new them.
address
address smart Additive
them. mobility
Additive
manufacturing,
inventory
manufacturing, Internet
management
Internet of
and
of Things
how
Things (IoT),
Industry
(IoT), big
4.0
big data
data analytics,
technologies
analytics, machine
can be
machine learning,
leveraged
learning,to and new
address
and new smart
them.
smart mobility
Additive
mobility
logistics modelsInternet
manufacturing,
manufacturing, are emerging
Internet of
of technologies
Things (IoT), thatdata
big enable efficient
analytics, inventory
machine solutions
learning, and for
newdifferent
smart types of
mobility
logistics
logistics
MRO
models
manufacturing,
models
parts. There
are
Internet
are
is of Things
emerging
emerging
no Things
single
(IoT),
technologies
technologies
universal
big data
that
(IoT),strategy
big data
that analytics,
enable
enable
that
machine
efficient
analytics,
efficient
works for
learning,
inventory
machine
inventory
all MRO
and
solutions
learning, and
solutions
parts due to
new
for
new
for
wide
smart
different
smart
different mobility
types of
mobility
types
variety of
of part
logistics
logistics
MRO models
models
parts. Thereare
are
is emerging
emerging
no single technologies
technologies
universal that
that
strategy enable
enable
that efficient
efficient
works for inventory
inventory
all MRO solutions
solutions
parts due tofor
for different
different
wide types
types
variety of of
of
part
logistics
MRO
attributes models
parts. Thereare
including is emerging
no
usagesingle technologies
universal
patterns, lead-time,that
strategy
and enable
that
cost. efficient
works
In for
this inventory
all MRO
paper, we solutions
parts due
propose to
thefor different
wide types
variety
clustering ofof of
part
MRO
MRO
MRO parts.
parts.
attributes There
There
including is
is no
no
usagesingle
single universal
universal
patterns, strategy
strategy
lead-time, and that
that works
works
cost. In for
for
this all
all MRO
MRO
paper, we parts
parts due
due
propose to
to
the wide
wide variety
variety
clustering ofof
of part
part
MRO
MRO
parts parts.
attributes
into There is
including
different no single
usage
groups and universal
patterns,
discuss strategy
lead-time,
the and
potential that works
cost. In
strategy forimprove
this
to all MRO
paper, we parts duemanagement
propose
inventory to wide
the variety
clustering ofofMRO
part
efficiency
attributes
attributes including
including usage
usage patterns,
patterns, lead-time,
lead-time, and
and cost. In
In this paper, we propose the clusteringefficiency
of MRO
parts
parts
by
into
attributes
into different
including
different
leveraging
groups
usage
groups
emerging
and
and discuss
patterns,
discuss
technologies
the
the
for and cost.
potential
lead-time,
potential
each MRO
strategy
cost.
partIn
strategy this
to
this
to
group.
paper,
paper, we
improve
improve we propose
inventory
inventory the
the clustering
propose management of
of MRO
clusteringefficiency
management MRO
parts
parts into
into different
different
by leveraging
leveraging groups
groups
emerging and
and discuss
discuss
technologies the
the
for potential
potential
each strategy
strategy
MROstrategy to
to
part group.
group. improve
improve inventory
inventory management
management efficiency
efficiency
parts
by into different groups
emerging and discussfor
technologies theeach
potential
MRO part to improve inventory management efficiency
by
by leveraging
© 2019,
leveraging emerging
IFACInventory
emerging technologies
(International Federation
technologies for
of each
for MRO
Automatic
each MRO part group.
Control)
part Hosting by Elsevier Ltd. Clustering,
All rights reserved.
Keywords:
by leveraging emerging Control, Maintenance
technologies for each MRO Repair part&group.
Operations
group. Inventory, Additive
Keywords: Inventory Control,
Keywords: Inventory Control, Maintenance
Maintenance RepairRepair & & Operations
Operations Inventory,
Inventory, Clustering,
Clustering, Additive
Additive
Manufacturing,
Keywords: Internet
Inventory of Things, Predictive Modeling
Keywords:
Manufacturing,
Keywords:
Manufacturing, InternetControl,
Inventory
Inventory
Internet Things,Maintenance
Control,
of Things,
Control,
of Maintenance Repair
Repair &
Predictive Modeling
Maintenance
Predictive Modeling
Repair & Operations
& Operations Inventory,
Operations Inventory, Clustering,
Inventory, Clustering, Additive
Clustering, Additive
Additive
Manufacturing, Internet
Manufacturing, Internet of
of Things,
Things, Predictive
Predictive Modeling
Modeling
Manufacturing, Internet of Things, Predictive Modeling 

1. INTRODUCTION  - Additive manufacturing (aka 3D Printing) can be
 -- Additive
Additive manufacturing (aka 3D Printing) can be
1.
1. INTRODUCTION
INTRODUCTION adopted
-- adopted
Additive
Additive tomanufacturing
make the lead-time
manufacturing
manufacturing
(aka
(aka
(aka
3D
3D
3D
Printing)
shorter
Printing)
Printing) andcanmore
can
can
be
be
be
1.
1. INTRODUCTION
INTRODUCTION - Additive
adopted to
to make
manufacturing
make the
the lead-time
(aka
lead-time3D shorter
Printing)
shorter and
and more
can
morebe
Maintenance, Repair, 1. and Operations (MRO) items are parts
INTRODUCTION predictable
adopted
adopted to
to for
make
make parts
the
the with long
lead-time
lead-time and irregular
shorter
shorter and
and lead-
more
more
Maintenance,
Maintenance, Repair,
Repair, and
and Operations
Operations (MRO)
(MRO) items
items are
are parts
parts predictable
adopted
predictable to for
make
for parts
the
parts with long
lead-time
with long and irregular
shorter
and and
irregular lead-
more
lead-
that support the
Maintenance, production
Repair, and operations (MRO)
Operations but are notitems included
are in
parts times.
predictable
predictable for
for parts with long and irregular lead-
Maintenance,
that support
Maintenance,
that
the support
finished
the
theRepair,
Repair,
product.
and
production
and
production
MRO
Operations
operations
Operations
operations
parts
(MRO)
but
(MRO)
includebut are
are items
not
items
not
consumables
are
are parts
included
included in
parts
in
(e.g.
times.
predictable
times. for parts
parts with
with long
long and
and irregular
irregular lead-
lead-
that
that
the support
support
finished the
the production
production
product. MRO operations
operations
parts includebut
but are
are not
not
consumablesincluded
included in
in
(e.g. times.
times.
that
the support
finished
gloves, the
goggles, production
product. MRO
and MRO operations
parts
officeparts include
supplies), but are not
consumables
asset included in
(e.g.
maintenance - Logistics
times. 4.0 and new smart mobility models allow
the
the finished
finished product.
product. MRO parts include
include consumables
consumables (e.g.
(e.g. -- Logistics
Logistics 4.0
4.0 and
and new
new smart
smart mobility
mobility models
models allow
gloves,
the
supplies
goggles,
finished
gloves, (e.g.product.
goggles, and
and
grease,
office
MRO
office
belts, and
supplies),
parts include
supplies),
filters),
asset
asset
and spare
maintenance
consumables parts (e.g.
maintenance
(e.g. building
-- building
Logistics
Logistics efficient
4.0
4.0 and
and transportation
new
new smart
smart networks
mobility
mobility models
modelsto allow
share
allow
allow
gloves,
gloves,
supplies goggles,
goggles,
(e.g. and
and
grease, office
office
belts, and supplies),
supplies),
filters), asset
asset
and spare maintenance
maintenance
parts (e.g. - Logistics
building efficient
4.0 and
efficient transportation
new smart
transportation networks
mobility
networks modelsto
to share
allow
share
gloves,
supplies
motors, goggles,
(e.g.
valves, and
grease,
pumps, office
belts, and
and supplies),
filters),
cables). asset
and spare
Although maintenance
parts (e.g.
in some MRO
building
building parts between
efficient
efficient plants and/or
transportation
transportation centralized
networks
networks to
to MRO
share
share
supplies
supplies
motors, (e.g.
(e.g.
valves, grease,
grease,
pumps,belts,
belts, and
and
and filters),
filters),
cables). and
and spare
spare
Although parts
parts
in (e.g.
(e.g.
some MRO
building
MRO parts between
efficient
parts between plants and/or
transportation
plants and/or centralized
networks
centralized to MRO
share
MRO
supplies
motors, (e.g.
valves,
enterprises, grease,
the pumps,
value belts,
of and
and
MRO filters),
cables).
parts isand spare
Although
substantial, parts
in (e.g.
some
MRO warehouses.
MRO
MRO parts
parts between
between plants
plants and/or
and/or centralized
centralized MRO
MRO
motors,
motors, valves,
valves,
enterprises, the pumps,
pumps,
value of and
and
MRO cables).
cables).
parts Although
Although
isAlthough
substantial, in
in some
some warehouses.
MRO parts
warehouses. between plants and/or centralized MRO
motors,
inventory valves,
enterprises, the
management pumps,
value didand
of MRO notcables).
parts
gain asis substantial,
much in MRO
some
MRO
attention as Differentwarehouses.
warehouses.
enterprises,
enterprises,
inventory the
the
managementvalue
value of
of
didMRO
MRO not parts
parts
gain is
is
as substantial,
substantial,
much MRO
MRO
attention as types of MRO parts may benefit from different
warehouses.
enterprises,
inventory
production or the
managementvalue
service of
did
parts MRO not
inventoryparts
gain is
as substantial,
much
(Bacchetti, et al. MRO
attention
2012).as Different
Different types
types of
of MRO
MRO parts
parts may benefit from different
inventory
inventory
production
inventory
production
management
management
or service
management
or service
did
did
parts not
not
inventory
didinventory
parts
gain
gain
not gain
as
as much
much
(Bacchetti,
as much
(Bacchetti,
attention
attention
et al. 2012).
attention
et al. 2012).
as
as Industry
Different
Different
as Industry 4.0 technologies,
types
types of
of MRO
MRO while may
parts
parts somebenefit
may
may MRO parts
benefit
benefit
from
from
from
different
inventory
different
different
In many
production cases,
or all
service MRO
parts parts
inventoryare treated
(Bacchetti, with et the
al. same
2012). Different
Industry 4.0
4.0 technologies,
types of MRO
technologies, while
parts
while some
may
some MRO
benefit
MRO parts
from
parts inventory
different
inventory
production
In many
production
In many or
cases,
or
cases, service
all
service
all parts
MRO
parts
MRO inventory
parts
inventory
parts are
are (Bacchetti,
treated
(Bacchetti,
treated with
with et
et al.
the
al.
the 2012).
same
2012).
same should
Industry
Industry follow
4.0
4.0 existing
technologies,
technologies, inventory
while
while some
some control
MRO
MRO practices.
parts
parts For
inventory
inventory
solution
In many across
cases, the
allboard
MRO despite
parts individual
are treateddifferences.
with the Basic
same should
Industry
should follow
4.0
follow existing
technologies,
existing inventory
while
inventory some control
MRO
control practices.
parts For
inventory
practices. For
In
In many
solution cases,
across
manyacross
solution cases, all
the MRO
board
allboard
the MRO parts
despite
parts
despite are
areand treated
individual
treated
individual with
differences.
with
differences. the same
Basic
the Basic
same example,
should
should the
follow
follow throughput
existing
existing and cost
inventory
inventory of additive
control
control manufacturing
practices.
practices. For
Foris
replenishment
solution across policies
the board such as
despite(Q,R)
individual (s,S) are common
differences. for
Basic example,
should
example, the
follow
the throughput
existing
throughput and
and cost
inventory
cost of
of additive
control
additive manufacturing
practices.
manufacturing Foris
is
solution across
replenishment the board
policies despite
such as individual
(Q,R) and differences.
(s,S) are common Basic
for still
example,
example, not competitive
the
the throughput
throughput for standard
and
and cost
cost ofparts manufactured
additive manufacturing usingis
solution
MRO across
replenishment
parts
replenishment
replenishment
the board
policies
inventory
policies
policies
despite
such
such
such
as
management.
as
as
individual
(Q,R)
(Q,R)
(Q,R)
and
and
and
differences.
(s,S)
(s,S)
(s,S)
are
are
are
common
common
common
Basic
for
for
for
still
example,
still not
not
traditional
competitive
the throughput
competitive
mass-production
for
for cost of
standard
and
standard
processes
additive
ofparts
parts
and the
manufacturing
manufactured
additive manufacturing
manufactured
part with
using
using
stable
is
is
MRO parts
replenishment
MRO parts inventory management.
policiesmanagement.
inventory such as (Q,R) and (s,S) are common for traditional still
still not
not competitive
competitive
mass-production for
for standard
standard
processes parts
parts
and manufactured
manufactured
the part with using
using
stable
MRO
MRO parts
parts inventory
inventory management.
management. still
short not
traditional competitive
mass-production
lead-time are formore
still standard
processes parts
economical and manufactured
the
to part
procure with using
stable
through
Sporadic
MRO partsdemand
inventory and irregular lead-time are two major short
management. traditional
traditional mass-production
mass-production
lead-time are still more processes
processes
economical and
and the
the
to part
part
procure with
with stable
stable
through
Sporadic
Sporadic demand
demand and
and irregular
irregular lead-time
lead-time are
are two
two major
major traditional
short
traditional mass-production
lead-time are
channels. still more
For MRO processes
economical
parts withandstable
the
to part
and with
procure high stable
through
usage
challenges
Sporadic in
demandMRO parts
and inventory.
irregular Unlike
lead-time production
are two parts,
major short
short
traditional lead-time
lead-time are
are
channels. still
still
For more
more
MRO economical
economical
parts with to
to
stable procure
procure
and highthrough
through
usage
Sporadic
challenges
Sporadic
challenges demand
in
demand
in MRO
MRO and
parts
and
parts irregular
inventory.
irregular
inventory. lead-time
Unlike
lead-time
Unlike are
production
are
productiontwo
two major
parts,
major
parts, short
traditional
patterns lead-time
the are
channels.
existing still
For
timemore
MRO economical
parts
series with
forecastingto
stable procure
and highthrough
techniques usage
are
which havein
challenges relatively
MRO parts consistent
inventory. usage,
Unlike MRO partsparts,
production traditional
are patterns
traditional thechannels.
channels.
existing For
For
timeMRO
MRO parts
parts
series with
with stable
stable
forecasting and
and high
high
techniques usage
usage
are
challenges
which have
challenges
which have in
in MRO
MRO parts
relatively
parts
relatively inventory.
consistent
inventory.
consistent Unlike
usage,
Unlike
usage, production
MRO
production
MRO parts
partsparts,
are
parts,
are traditional
patterns
adequate. thechannels.
Theexisting For
benefitstimeMRO
of parts
series
Big with
Data stable
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techniques
andusage
are
IoT
notorious
which for demand
have relatively fluctuation.
consistent Manyusage,MROMRO parts arepartsmade-
are patterns
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adequate. the
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benefitstime
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Big forecasting
forecasting
Data Analyticstechniques
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and are
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fluctuation.
consistent
fluctuation. Many
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parts parts
are
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are are
made-
are
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technologies theTheexisting
will benefits
not time
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implementation techniques
and
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IoT
to-order
notorious parts
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fluctuation. and
Many inconsistent
MRO parts lead-times,
are made- adequate.
adequate.
technologies The
Thewill benefits
benefits
not justifyof
of Big
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implementation and
and
effort. IoT
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notorious
to-order
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and MRO
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lead-times, adequate.
technologies Thewill benefits
not justifyof Big
the Data Analytics
implementation and
effort. IoT
to-order
especially
to-order fordemand
parts
parts with
with
fluctuation.
agedrelatively
equipment.
relatively long
long
Many
and
As
and
MRO parts
ainconsistent
result, are made- technologies
lead-times,
manufacturers technologies will
will not justify
will not
not justify
the
the implementation effort.
theisimplementation effort.
to-order
especially
to-order
especiallyparts
for
parts
for with
aged
with
agedrelatively
equipment.
relatively
equipment. long
long and
As
and
As aainconsistent
inconsistent
result,
inconsistent
result,
lead-times,
lead-times,
manufacturers
lead-times,
manufacturers The detailed trade-off
technologies
The detailed trade-off
analysis
justify
analysis is
required for each
implementation
required for each
individual
effort.
individual
usually
especially
especiallycarry
for
for substantial
aged
aged buffers
equipment.
equipment. of
As
As a
aspare and
result,
result, maintenance
manufacturers
manufacturers The
MRO detailed
part trade-off
to analysis
investigate is required
applicability for
and each individual
benefits of
usually carry substantial buffers of spare and maintenance The
The detailed
detailed trade-off
trade-off analysis
analysis is
is required
required for each individual
especially
usually
inventory
usually
usually
for
carry
carry
carry
aged
to substantial
protectequipment.
substantial
substantial
buffers
against
buffers
buffers
As
of
of
of
aspare
downtimeresult,
spare
spare
and
and
and
manufacturers
duemaintenance
to part MRO
maintenance
maintenance The
MRO
implementation
part
detailed
part to
to investigate
trade-off
of analysis
investigate
Industry 4.0 required for
applicability
istechnologies.
applicability and
for
and each
each
For
individual
benefits
individual
benefits
companies
of
of
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usually carryto protect
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The papermanagement.
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replacement parts
parts delivered.
delivered.
replacement parts delivered.
2405-8963 © 2019, IFAC (International Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved.
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Copyright
Copyright ©under
2019 responsibility
2019 IFAC
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Copyright © 2019 IFAC
10.1016/j.ifacol.2019.11.171
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2019 IFAC MIM
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technologies for different MRO part classes identified in
Section 3. Section 5 concludes the paper.
2. MRO Parts Characteristics
In this section, we present the initial analysis of MRO parts
characteristics focusing on demand pattern and procurement
lead-time (Conceição et al. 2015). The data set includes
approximately 300,000 unique MRO parts with two years of
usage history from a number of selected facilities of a major
automotive manufacturer.
The MRO parts usage data demonstrated a variety of demand
patterns. Average Demand Interval (ADI) and Coefficient
Variance Square (𝐶𝐶𝐶𝐶 2 ) of the usage volume are adopted as
parameters to describe usage patterns (Ghobbar et al. 2003).
Based on ADI and 𝐶𝐶𝐶𝐶 2 , parts are classified into four categories
based on modified William’s criteria (Williams et al. 1984).
Fig. 1. MRO Parts Usage Demand Patterns
In Figure 1, the x-axis denotes ADI and the y-axis indicates
values of 𝐶𝐶𝐶𝐶 2 . In Figure 2, data shows that 66% of the parts in
our data set are lumpy with a sporadic and unstable demand.
Fig. 2. MRO parts usage pattern distribution
Lead-time is another major challenge in MRO parts
replenishment planning. Given the nature of sporadic usage of
MRO parts, considerable portion of the parts are made-to-
order, which typically is associated with long and irregular
lead-times. The absence of required MRO parts may put
177
production lines at risks of shutting down or incur substantial
expedited cost to procure the parts. To minimize such risks, a
typical practice is to inflate the lead-time estimations and carry
extra inventory to protect against unexpected issues. In some
cases, where the actual lead-time is unknown, we observed
managers entering lead-times of over a year in the inventory
management system to avoid the risk of not having critical
parts on hand. Although this practice minimizes the risk of
downtime, it significantly increased the capital tied up with
inventory and possible obsolescence.
Figure 3a shows MRO part counts by lead-time while Figure
3b show inventory values for the given data set. Note that there
is only about 12% of MRO parts with lead-time of over 8
weeks, but these parts constitute almost 40% of inventory
value. It is because these long lead-time parts are mostly made-
to-order and tend to be more expensive.
Fig. 3a. MRO parts lead-time distribution
Fig. 3b. MRO parts inventory value distribution
3. MRO Part Clustering
In this section, we describe a clustering technique adopted for
grouping of MRO parts into a number of clusters that guides
our investigation to apply different industry 4.0 technologies.
Several researchers proposed the classification of MRO parts
into different groups to apply different inventory management
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policies (Bacchetti et al. 2012, Boylan et al. 2008, Conceição
et al. 2015, Hu et al. 2017). Most of the previous classifications
focus on demand pattern. In our paper, we extend clustering
attributes to include balance on hand, lead-time, unit price,
shareable score (number of plants using the same part),
commodity description (high-level part description) and
classification code (how resent the part was used).
𝑦𝑦𝑖𝑖𝑖𝑖 : Partition matrix, 𝑦𝑦𝑖𝑖𝑖𝑖 = 1 indicates object 𝑋𝑋𝑖𝑖 is assigned to
cluster 𝑄𝑄𝑙𝑙
d : distance measure between objects and cluster prototypes
𝑋𝑋 : Set of n parts. 𝑋𝑋𝑖𝑖 = [𝑥𝑥𝑖𝑖1 , 𝑥𝑥𝑖𝑖2 , 𝑥𝑥𝑖𝑖3 ,…, 𝑥𝑥𝑖𝑖𝑖𝑖 ] is the i-th part
represented by a vector with m attributes

MRO part data includes both numerical and categorical 𝑄𝑄 : Set of k cluster prototypes. 𝑄𝑄𝑙𝑙 = [𝑞𝑞𝑙𝑙1, 𝑞𝑞𝑙𝑙2 ,…, 𝑞𝑞𝑙𝑙𝑙𝑙 ] is the
parameters, so we use the distance and similarity measures to l-th cluster prototype represented by a vector with m attribute
group similar objects. We use K-Prototype for clustering
k: Number of cluster prototypes
which is a combination of K-Means and K-Modes to cover
both numerical and categorical attributes (Szepannek et al. n: Total number of parts
2018).
i : 1…n parts
3.1 Attribute Selection l : 1…k clusters

In addition to ADI and 𝐶𝐶𝐶𝐶 2 introduced in the previous section, The distance measure on numeric attributes is the square
there are other attributes involved in inventory replenishment Euclidean distance between each object and cluster prototypes.
decision-making. Average lead-time, unit price, average Similarity measure of categorical attributes is the number of
weekly demand, current balance on hand, shareable score, and mismatches between objects and cluster prototypes (Huang et
demand occurrence (count of number of weeks with non-zero al. 1997). Distance measure 𝑑𝑑(𝑋𝑋𝑖𝑖 , 𝑄𝑄𝑙𝑙 ) accounts for both
demand) are available numerical attributes (Willemain et al. numerical and categorical distances is represented by Equation
2004). In order to avoid dependency of measurement units on (2) below.
numerical attributes, they were normalized to a scale between 𝑚𝑚𝑟𝑟 𝑚𝑚𝑐𝑐
0 and 1. To select the least number of attributes to explain the 2
most variance, we visualized the correlation of all the 𝑑𝑑(𝑋𝑋𝑖𝑖 , 𝑄𝑄𝑙𝑙 ) = ∑(𝑥𝑥𝑖𝑖𝑖𝑖𝑟𝑟 − 𝑟𝑟
𝑞𝑞𝑙𝑙𝑙𝑙 ) + 𝛾𝛾𝑙𝑙 ∑ 𝛿𝛿(𝑥𝑥𝑖𝑖𝑖𝑖𝑐𝑐 , 𝑞𝑞𝑙𝑙𝑙𝑙
𝑐𝑐
)
numerical attributes and identified that demand occurrence 𝑗𝑗=1 𝑗𝑗=1
(2)
showed strong negative correlation with ADI and 𝐶𝐶𝐶𝐶 2 . As a if 𝑥𝑥𝑖𝑖𝑖𝑖
𝑐𝑐 𝑐𝑐
=𝑞𝑞𝑙𝑙𝑙𝑙
𝑐𝑐
Where 𝛿𝛿(𝑥𝑥𝑖𝑖𝑖𝑖 𝑐𝑐
, 𝑞𝑞𝑙𝑙𝑙𝑙 ) = {01
result, we excluded demand occurrence from numerical if 𝑥𝑥𝑖𝑖𝑖𝑖 ≠𝑞𝑞𝑙𝑙𝑙𝑙
𝑐𝑐 𝑐𝑐
attributes.
𝑚𝑚𝑟𝑟 : Number of numerical attributes
𝑚𝑚𝑐𝑐 : Number of categorical attributes
𝛾𝛾𝑙𝑙 : Weight for categorical attributes for cluster l

Cost function 𝐸𝐸 with distance measure of both numerical and

categorical attributes is
𝑘𝑘 𝑛𝑛 𝑚𝑚𝑟𝑟
2
𝐸𝐸 = ∑ 𝑦𝑦𝑖𝑖𝑖𝑖 ∑ ∑(𝑥𝑥𝑖𝑖𝑖𝑖𝑟𝑟 − 𝑞𝑞𝑙𝑙𝑙𝑙
𝑟𝑟
)
𝑙𝑙=1 𝑖𝑖=1 𝑗𝑗=1
𝑘𝑘 𝑛𝑛 𝑚𝑚𝑐𝑐 (3)
+ 𝛾𝛾𝑙𝑙 ∑ 𝑦𝑦𝑖𝑖𝑖𝑖 ∑ ∑ 𝛿𝛿(𝑥𝑥𝑖𝑖𝑖𝑖𝑐𝑐 , 𝑞𝑞𝑙𝑙𝑙𝑙
𝑐𝑐
)
𝑙𝑙=1 𝑖𝑖=1 𝑗𝑗=1

Fig. 4. Correlation plot for feature selection We use K-Prototype to minimize cost function 𝐸𝐸. Here we
iterate equation (3) for k values from 2 to 20, and plot the cost
3.2 Cost Function function value for each k.

The next step is to partition MRO parts into clusters. To guide

the search for practical partitions, we used cost function which
is defined as the total distance of individual parts to cluster
prototypes as the clustering criteria (Huang et al. 1997):
𝑘𝑘 𝑛𝑛

𝐸𝐸 = ∑ ∑ 𝑦𝑦𝑖𝑖𝑖𝑖 𝑑𝑑(𝑋𝑋𝑖𝑖 , 𝑄𝑄𝑙𝑙 ) (1)

𝑙𝑙=1 𝑖𝑖=1

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Table 1. Part Clusters

Balance
Lead Unit Usage Usage Usage Shareability Commodity Classification
on
Time Price Quantity Variance Interval Score Description Code
Hand
High & Mod. &
Smooth Usage All All All Low All All High
Mod. Low
Erratic or Intermittent
All All All Mod. All Mod. All MRO Parts Mod.
Usage
Long Lead-time, Low Mod.
Mod. & Not Liquid
Volume and Above Low High & Low All High Mod. & Low
High or Gases
Moderate Cost High
Mod. Mod.
High Demnd Mod. & Mod. & Not Liquid
& & Mod. High High Mod. & Low
Variations Low High or Gases
High High

4. Inventory Management Strategies by Clusters

Fig. 5. Cost function output to select optimal number of
clusters
3.3 Heuristic on part clustering
Figure 5 indicates the trend that more clusters result in lower
value of Cost Function E and therefore lower within-groups
distance. The cost function does not show significant drop
after seven clusters as illustrated by Figure 5. However, over
partition increases operational complexity. Fewer clusters are
more likely for successful execution. From practical
perspective, four clusters provide a good balance between
clustering accuracy and implementation feasibility to address
MRO parts inventory management challenges. The four
quadrants in Figure 6 present four different classes of MRO
parts. Each class is associated with a given strategy to leverage
Industry 4.0 technologies as described in the next section.
Fig. 6. Four MRO inventory management approaches
In this section, we discuss the strategies for engineering of
inventory replenishment models leveraging different Industry
4.0 technologies.
4.1 Parts with Smooth Usage
MRO parts such as lubricant, machining oil, and personal
safety equipment have consistent usage patterns and lead-
times. Traditional inventory replenish models and forecast
methods are adequate in application to this type of inventory
management given sufficient historical usage data.
Exponential Smoothing and Moving Averages are the most
common forecasting methods for parts with smooth usage.
Simple Exponential Smoothing assigns exponentially
decreasing weights from the most recent to the oldest
observations of time series data. The model picks optimized
weight parameter by minimizing squared residuals.
Simple Exponential Smoothing Method assumes lead-time
and demand follow normal distribution patterns. Many spare
and maintenance parts have intermittent demand so traditional
time series methods do not work. One of the common
approaches applied in industry to address intermittent demand
is Croston’s method. Croston’s method takes both demand
and interval between usages as inputs, applies exponential
smoothing to both, and calculates the mean demand per period.
(Willemain et al. 2004, Johnston et al. 1996).
Optimal weight parameters for Exponential Smoothing and
Croston’s method are selected based on minimization of SSE
(sum of squared error). Demand forecast, unit price, lead-time,
ordering cost, holding cost, and given service level are used to
determine safety stock levels, re-order points, and re-order
quantities.

The clustering is based on nine attributes including Balance on
Hand, Lead-time, Unit Price, Usage Quantity, Usage Variance,
ADI, Shareability Score, Commodity Description and
Classification Code. We assigned three levels under each
attribute: Low, Moderate (typed as Mod. in chart for space
consideration) and High. As illustrated in Table 1 below.
4.2 Parts with Erratic and Intermittent Usages
This group contains mainly maintenance and repair parts for
production assets such as servomotors for robots and
pneumatic devices. For this type of part, the historical usage
data does not potentially represent future usage. Scheduled or
unscheduled maintenance and repair activities mainly drive
demand of parts in this case (Van Horenbeek et al. 2013).
Traditional replenishment models based on historical usage

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might not be the best strategy for this category of MRO parts.
Consequently, explicit linking of such MRO parts with the
specific assets can help improve demand forecast by
leveraging prognostics, reliability, and maintenance schedule
(Keizer et al. 2017).
With connected assets and part mapping to assets, advanced
prognostics based on optimal timing of assets maintenance can
be developed. These prognostics can be used to accurately
forecast the need of corresponding MRO parts (Wang et al.
2011). Emerging advanced data acquisition techniques such as
IoT, Big Data, Advanced Analytics, and Machine Learning are
at the frontier of the manufacturing prognostics (Lei et al.
2017). For example, (Garcia et al. 2018) presents a system that
continuously monitors equipment performance and analyses
deviations of sub-cycle times that signals potential future
failures. It allows scheduling of preventive maintenance before
machines fail and insures the ordering of the right part at the
right quantity and at the right time.
4.3 Parts with Long Lead Time, Low Volume, and Above
Moderate Cost
Lead-time is another big factor of MRO parts excess
inventory. Long or irregular lead-time will force plants to
stock more to prevent from running out.
Fig. 7. Safety stock simulation by lead-time cap
In Figure 7, we present results of a scenario analysis that
bounds the maximum procurement lead-time by a given Lower
Bound (LB). Then the lead-time for any given part is
determined by following, if lead-time is less than LB, then we
use the actual lead-time; if lead-time is higher than LB, then
we set lead-time to LB.
Safety stock value is calculated as
SS Value = (z ∗ 𝜎𝜎𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 ∗ √𝐿𝐿𝐿𝐿) ∗ Unit Price (4)
where
z: service level, we use 95% service level across all parts;
𝜎𝜎𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 : demand standard deviation;
𝐿𝐿𝐿𝐿: lead-time.
180
For example, Figure 7 shows for the given set of MRO parts,
if we can limit the lead-time to 30 days, then we can reduce
the safety stock value to approximately 1/3 of the current level
(no Lead-Time Cap), which can free millions of dollars in
capital.
One of the innovative manufacturing technologies that can
help alleviate lead-time problem is additive manufacturing.
Additive Manufacturing (AM) emerged in the 1980s.
Expiration of early patents and continuous improvement of
technology in recent years dramatically reduced the cost of
AM and prompted interest in its potential to transforming
manufacturing supply chains. Compared with traditional
additive manufacturing, the modern 3D printers generates
higher quality parts at lower cost in a more timely fashion.
Fast turnaround for highly customized parts made AM perfect
for fast prototyping and on demand manufacturing. It provides
an option to produce a maintenance part when needed instead
of keeping it in inventory (Wits et al. 2016). This strategy
makes sense especially for parts with significant long lead-
times, relative high unit prices, and sporadic usage intervals
(Knofius et al. 2016).
The corresponding part cluster allows us to identify the parts
that should be considered for additive manufacturing from the
operational efficiency point of view (Song et al. 2018).
However, additional investigation for feasibility of the given
part is required. Additive manufacturing has its limitations. 3D
printed parts might not be able to satisfy the requirements in
mechanical properties, surface condition, or dimensional
accuracy for some critical parts. The size of the part is also
limited by the dimension of the 3D printing machine.
Intellectual property right is another concern of 3D printing.
Some parts might be covered by patents and 3D printing cause
potential legal issues.
4.4 Parts with High Demand Variation
This category includes parts characterized by the following
attributes: high demand variance, slow moving, high value
with moderate or high and irregular lead-times. In the case of
enterprises with multiple manufacturing locations in a given
geographic area, the possible solution to mitigate challenges is
to establish centralized sharing warehouse for MRO parts. In
general, centralization of MRO inventory is not new and has
been practiced by enterprises to leverage the quantity discount
offered by suppliers. However, the application of Industry 4.0
technologies and proliferation of new smart mobility models
expands the nomenclature of MRO parts that can be efficiently
serviced from the centralized warehouse.
By accessing the MRO inventory records, forecast, and
prognostics data of individual manufacturing locations, the
central MRO inventory management system may not only
react to critical requests for the spare and maintenance parts
delivery, but also anticipate the upcoming need for the parts.
This allows the optimization of the delivery schedule and
increases vehicle utilization.
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Leveraging smart mobility models for MRO parts deliveries
permits the shift from fixed milk-run large truck deliveries to
small vehicles, such as utility vans or pickup trucks, operating
on dynamic routes. This increases the efficiency of more
frequent deliveries of small quantities of parts. Many
enterprises have already implemented dynamic shuttle
services for their employees. These services can be leveraged
for spare parts delivery. In the future, autonomous vehicles and
drones will further enhance Just-in-Time replenishment of
MRO parts.
The concept of centralization of MRO parts is synergetic with
the previous group for additive manufacturing. For example, if
the part requires expensive additive manufacturing equipment,
sourcing 3D parts to the central location will help consolidate
the capital investment and technical expertise required for
additive manufacturing.
5. CONCLUSIONS
The paper focuses on the challenges of MRO parts inventory
management and growing interest in Industry 4.0 technologies
to improve its efficiency. The emerging area of prognostics
leveraging Big Data Analytics, ML and IoT can improve the
forecast of maintenance cycles and spare parts demand.
Additive manufacturing can help to stabilize and reduce lead-
time to procure low usage items. Logistics 4.0 and New Smart
Mobility models provide an efficient transportation network to
support centralization of MRO parts that benefit from demand
variability pooling and consolidation of inventory
management and procurement activities.
In many industrial settings today, all MRO parts are treated
using the same inventory management approach. Using real
world data from the automotive industry we have
demonstrated differences in MRO parts usage patterns, lead
times, and cost and impacts of these parameters on the
efficiency of inventory management. These different attributes
call for the different approaches to improve inventory
efficiency.
We proposed a classification of the MRO parts and associated
strategies to address inventory management solutions from the
perspective of Industry 4.0 technologies. We also proposed a
clustering technique that automatically classifies all the MRO
parts into appropriate groups to focus the consideration of the
appropriate technology innovation.
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