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INVENTORY MANAGEMENT OF CRITICAL SPARE ×

PARTS AND ITS
EXPLORE ACADEMIA RELATION TO PMS
PRODUCTS

2018
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INVENTORY MANAGEMENT OF CRITICAL SPARE PARTS AND
ITS RELATION TO PMS

ADVANCE YOUR CAREER

PLANNED MAINTENACE SUPERVISOR ALEKSANDAR PUDAR

REEDEREI NORD B.V. | Alpha Tower │ De Entree 53 │ 1101 BH AMSTERDAM, The Netherlands 

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ALP Ver. 5.3, 31.08.2018

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CONTENTS
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S. No. & Description .............................................................................................................................. Page No
i. Abstract. ........................................................................................................................................................ 1

Grants 1. Introduction .............................................................................................................................................. 2/3

2. Possible Inventory Policy - Management Review ...................................................................................... 3/4

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3. The investigation, Implementation at RNBV.....................................................................4/5/6/7/8/9/10/11
3.1. Off -Hire Cost and Lead Time Estimation, Critical and Not Critical Spares. ....................................... 4/5/6/7
HOME MENTIONS LETTERS ANALYTICS
3.2 R.A. for Inventory Classification. ................................................................................................................ 7/8
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 3.3.Preventive Maintenance Program, CBM, Vibration Surveys, Oil Analysis and CM. ..............................8/9/10
3.4. RNBV Standardised Job Cards, Required Resources, Cost and Savings.. .............................................. 10/11
3.5 Critical Spare Parts List Standardization.. .................................................................................................... 11

4. Discussion ............................................................................................................................................. 12/13

5. Conclusion .................................................................................................................................................. 13
6. References ............................................................................................................................................ 13/14
7. Bibliography ............................................................................................................................................... 14
8. Snapshots and Tables ............................................................................................................................ 14/15

i. Abstract

An improvement of the inventory policy at RNBV was made in the first quarter of 2015. At the start
we have determined that significant inventoried spares have been used randomly, i.e. spares were
used when parts fail or as apart of PMS scheduled overhaul.
To solve the problem of reducing an extensive inventory but keep enough to allow an uninterrupted
service and be in line with industry standards and TMSA 3 requirements. We created a proper and
financially efficient multi-layered inventory policy using classification scale and method linked to
vibration monitoring and predictive maintenance together with risk assessment for each equipment
and spare part within machinery.

The arrangement can be divided in to:

 Start  – the parts were nominated with regards to suppliers lead time and the cost of off-hire
due to failure and an RA matrix to ensure that the most critical items were identified.
 Development - use of a developed preventive maintenance program and vibration
monitoring results where applicable for the most critical parts to minimise downtime due to
failure was ensured.
 Standardisation - critical parts were standardised across the fleet to reduce the inventory
rating financial savings while keeping the same level of service to the customers, and in the
same time, we kept spares on the Critical Spare Parts List ship specific to avoid mix up.

Preparation for this showed that the company had an extensive inventory and efficient reduction of
its size was possible by focusing on critical parts.
This article objective is to demonstrate a real and economically efficient inventory policy used in
RNBV Company.

ALP Ver. 5.3, 31.08.2018

1. Introduction

The global economy is more and more competitive, and cost-effectiveness is ever more critical.
Inventory management became an obstacle to the costs reduction in the maritime industry, and it
affects improvements to service. Maritime shipping companies large or small have some inventory.
The spares listed in company required inventory ensure that the vessel and company operation is
efficient.
While overstocking the inventory reduces capital that can be directed to other aspects of operations,
lack of the same causes other problems such as time, i.e. financial loss and customer dissatisfaction.
‘ The challenge then becomes to coordinate the overall inventory efficiently, so the optimal amounts
are maintained.’(Source Unknown) 
While compiling a critical spare parts list and critical equipment list and doing onboard technical
inspections, we have witnessed the problems regarding inventory first hand. In the beginning, the
items in inventory were used at random intervals as they were used when parts fail or when planned
maintenance highlights some overhaul requiring the spares as due.
We provide service in transportation for oil and chemical industries worldwide. Vessels are chartered
for a predetermined time charter, CP or voyage charter contract.
When the vessel is not following proper maintenance schedule and breaks, it becomes unusable
hence it is off-hire resulting in financial losses
Since vessels trade worldwide sometimes parts are hard to source, especially in an emergency,
where the vessel must be repaired immediately and returned to work.
All the risks mentioned above have resulted in a slightly overstocked spare parts inventory.
The daily revenue is the primary company income, and the loss due to off-hire is unrecoverable, so
when a vessel breaks, the technical manager and technical superintendents goal is to do whatever it
takes to return the vessel to work. In completing that task in this stressful situation, the inventory
cost is often set aside.
To avoid or minimise off-hire in the future, when a part is replaced an extra part is supplied and put
into inventory for the next time if the same machinery happens to break to avoid the chances of
downtime. Also, maintenance is done as per PMS, and parts that will be used are ordered in advance
to ensure that they arrive on board on time.
Required spares are maintained as per Critical spare parts list using PMS integrated into ERP for
inventory management.
To reduce an extensive inventory but to maintain the necessary spares for allowing an uninterrupted
service to the customer, we are setting up an inventory policy using inventory classification method.
That is being done in line with a preventive and condition-based maintenance program, vibration
monitoring. To ensure that everything goes well follow up of inventory quantities and record keeping
within PMS is now more emphasised during technical inspections.
First, we did the ranking for spare parts already contained in our inventory. The system used was not
flat, it was in-depth and analytical, including the expected delivery time for an item and the cost of
off-hire that might result in not having the item in inventory. We use preventive maintenance
program combined with a condition based maintenance to estimate the frequency of use of spare
part and if and when it may be needed. Finally, we ended up with the improvement resulting in our
standardised and vessel specific “ Critical  Spare Parts List ” and reduction of the inventory.
Using our maritime ERP software we were able to mark spare parts identified critical and digitally
manage them. An R.A. matrix was used to show the relative importance of the items which allowed
our technical team to identify spares that are critical and nominate them as Critical or/and
Environmentally Critical.
We are developing and planning to use the three-step arrangement of spares parts and incorporate it
into a functional inventory policy to create a more stable and predictable environment that should
result in financial savings while keeping the same level of service to our customers.
At the same time, Inventory management improvement was started and is still in progress. By the
end of the year, 65-70% of the fleet will be using Barcoding system with standardised storage

ALP Ver. 5.3, 31.08.2018

position places, together with already used min, and max required quantities of critical spare parts
following “ Critical Spare Parts List ” and “Optimal Spare Parts List.”  

2. Possible Inventory Policy - Management Review

‘ The ultimate goal of managing inventory is to satisfy the demand level at a minimum cost.’
(Robinson, 2014)
‘ The Just-in-Time (JIT) method is an
inventory strategy companies
employ to decrease waste by
receiving goods or producing goods  
at the right time to meet the
HOME MENTIONS
demands of the production process
and the demands of the company’s
 
  
‘Ultimately, this translates into saving the company
money, but JIT is not always the best method available to a
specific company. When a company’s operation is not  
time-based, the production and the demand for a product
cannot be predicted.
A similar method closely related to Just-in-Time is the
Materials Requirement Planning (MRP) method which is a
LETTERS
prominent approach to managing the flow of raw material
and components on the factory floor.’  (Abuhilal, Rabadi &
ANALYTICS TOOLS
 f p y p f yf ( ,
end customers ‘(Investopedia staff, Sousa-poza, 2006)
2003)
‘The advantages of this system just as in JIT is to reduce
the inventory to a minimum. However, it was backwards-
looking, assuming that future demand for an inventory was predictable and mirrors the past.
The challenge with MRP, much the same as JIT, is to determine the optimal time to request materials
ahead of requirements. In an unpredictable time-based environment, the future demand cannot be
calculated resulting in excessive inventory and old stock .’  (Hmida, Grant & Lee, 2013) 

‘ In reality, the frequency that a part is required is usually unpredictable. Also, it is very costly to have
vessel stopped and off-hire caused by the part failure. The cost of not having a part to carry repair is

much higher than both the holding cost plus the cost of the item. ’  (Koçaǧa,.Y.L & Şen, A,2006).)
‘ In this situation, parts are kept in inventory to repair the machines that the company uses to offer
their services to the customers. The frequency a part is used can be controlled by scheduling it to be
replaced before it fails, this is done through a regularly scheduled preventive maintenance. ’  
(Vaughan, 2005)

Our preventive maintenance program consists of preventive measures, with all the essential
elements of maintaining equipment. The first step used in setting up of our maintenance program
was related to proposed and modelled inspection intervals and preventive maintenance policy
identified by vibration surveys at regular intervals for all rotation systems.
We assessed historical data from our ERP and used the same for a consolidated strategy for
inventory control, and preventive maintenance of a randomly failing machinery subject to a
minimum required availability level spare parts.
Presently throughout the industry, it is challenging to get away from misconceptions about
preventive maintenance. One such misconception is that preventive maintenance is an unneeded
extra cost. To justify the cost savings related to efficient preventive maintenance we need to look at
the benefits and the long-term saving obtained by not having an equipment failure. It is a logical step
forward if the specific conditions are met, like:
 the part in question has increased rate of failure, and
 the combined cost of the preventive maintenance must be lower than the cost of corrective
action.
In recent years there has been an increase in the use of proactive maintenance techniques for the
repair and maintenance of machinery

ALP Ver. 5.3, 31.08.2018

Regular oil analysis for monitoring the equipment condition to pinpoint the right moment when to

perform maintenance is an example of a predictive measure. As predictive measure usefulness in

cost reduction is rising, newly identified predictive measurements can be included at any time.
Developments in condition monitoring technology and more powerful planned maintenance
software if appropriately used may assist in keeping cost down.
In an unpredictable environment like shipping by using a scheduled preventive maintenance program
with a classification method helps in creating a predictable inventory situation. Therefore using a
combination of various ways of inventory helped us solve the inventory problem in both reducing the
inventory and saving costs.

3. The investigation, Implementation at RNBV 

RNBV provides transportation service, and the spare parts inventory reliability is crucial.
Spare parts inventory is necessary to provide emergency services in getting the vessels back to work
in the shortest time possible.
Over the years, on the older vessels, the company have accumulated an extensive inventory of the
formal procedure to manage it that was due to be improved. The improvement resulted in funds
savings that were used elsewhere in the company.
Existing inventory policy is being refined and its implementation and use followed up/enforced to
assist in this task.

3.1. Off -Hire Cost and Lead Time Estimation, Critical and Not Critical Spares

For the calculation that resulted in the Critical Spare Parts List for each vessel, we estimated off-hire
costs ( using current rates), the failure frequency, and the machinery lifetime where it will be used.
Vessel being off-hire for any reason, whether it is for inspection, maintenance, or malfunction, costs
money. The precise cost aids managers in decision making as to when to arrange vessel for dry
docking, or in the case of repairs, how much to spend on getting the vessel running again.
For accurate cost projection, it is required to know what is being affected by off-hire. Vessel
unemployment and income reduction may look like the most significant part of off-hire costs, any
actual cost of the off-hire estimate should include the value of the opportunities that were lost when
the spares were not available.

To calculate the total off-hire cost, we need to sum up the following values.
 Labour cost, direct and indirect, of the off-hire.

‘To find the direct labour costs, we took the length of the possible off-hire and multiplied it by
the hourly costs of the vessel operators. Calculated indirect labour costs by determining how
much of a share of the supervisory and support workload the vessel takes, then multiplied
that by the costs of the support staff and managers.’ (Source Unknown)

 The cost of direct value loss due to the off-hire. The loss = to the worth of the service that
would have been produced during the off-hire.

The start-up costs are related to restarting the vessel, including any additional workers
needed, energy surges, and inspection costs.
 The costs are related to actual repair, either temporarily or permanently.

Because the cost of off-hire will usually exceed the value of the part, all items are valuable on the
same level to the operations of the company, to distinguish items of interest from other items, more
data needs to be collected rather than just the price of the parts.
We defined a Critical Spare Parts Calculator that took into account:
 Off-hire cost per hour if the part is unavailable

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