NPRA Final Presentation

Technical Session:
Moving From Traditional To Risk Based

Spare Part Inventory
Hernando Gómez de la Vega

Strategic Business Director
Reliability and Risk Management S.A.
Maracaibo, Edo. Zulia, Venezuela
Co-Authors:
Cesar Malpica – Reliability Specialist
Michele Leccese – Reliability and Risk Consultant
Nage Moumar – Materials and Inventory Specialist
2007 Reliability & Maintenance Conference

Moving From Traditional To
Risk Based Spare Part
Inventory

WHEN TO DEFINE THE OPTIMIZED INVENTORY
ITEMS?
When team project's efforts are focused on
building up the facility:
The goal is to match schedule & budget
When deterioration mechanisms arise

the Operation's efforts are focused on:
Keep Plants Running maximizing

availability
Integral Reliability ® Implementation
Steps in Gas and Oil Industry
Diagnostic
– Criticality Analysis
– RAM Analysis
Maintenance Review or Re-design Decision Models
(Adequacy to Operational Context ) Optimization (Investment
and Opportunities Portfolio
- RCM – APHP
Management)
- RBI
- RCA AWARNESS
T
Maintenance Optimization R S Surface-Subsurface or
A K
I HUMAN I Process-Infrastructure
- Frequencies CRO N Human Resources Reliability Models
RELIABILITY L
- Inventory CRO I L Integration
N
Asset and Processes Life G
Cycle Cost Optimization UNDERSTANDING Reliability from Design
– LCC and Investment
– Remaining Life Optimization
Integral Reliability
Asset Management
Business Fundamental Objectives
FACILITATOR
Methodology Advisor
OPERATOR MAINTAINER
Experts on System Experts on System and
and Equipment Equipment Maintenance
Operability and Repairs
PROCESS ENGINEER COST & FINANCE

SPECIALIST
Process Global
Vision Costs and Budgeting
SPECIALISTS Global Vision
Experts on Different Areas
Reliability, Reservoir, Production,
Manufacturers, HSE
ASSETS IN NEW ASSETS
SERVICE PROJECT
PROPER SPARE PROPER PARTS AND

WHEN NEEDED EQUIPMENT
FOR INSTALLATION
Dynamic Optimization cycle for spare
parts inventory driven by RISK
FAILURES DATABASE
PROPER SPARE
FOR INFANT MORTALITY STAGE
INVENTORY LEVEL INVENTORY LEVEL

REVISION PREDICTION
PREVENTIVE
MAINTENANCE

RECOMMENDATIONS FROM
PROJECT SPARE PARTS
SUPPLIERS
COORDINATOR
OR MANUFACTURERS
RELIABILITY AND
ANALYSIS
OPERATIONS
AND APPROVALS
FOR ANALYSIS
SPARES RECEIVED
PO PLACEMENT
AT WAREHOUSE

CATALOGUING
The cataloguing consists of the description, nomination and numeration of

every article to identify it by means of an alone name, an alone number
and an alone description.
The cataloguing has the objective of:
• Facilitating the identification of the articles.
• Facilitating the acquisition and control process.
• Creating a unique language within the supply environment.
• Executing exchange of articles from different manufacturers.
• Reducing the number of articles in inventory.

STOCK LEVEL DEFINITION :
TRADITIONAL APPROACH
Manufacturer + Maintenance + Procurement

Output
Requested
Information 8
1. Perception
7 based Items
Rate of Frecuency Spare 1
6
selection for
Demand for 5 Frecuency Spare 2
4
Frecuency Spare 3 inventory
Spare Parts 3
Frecuency Spare 4
Frecuency Spare 5
(MTBF) 2
1
RISK
2. frequency of
0 Use Quantity
1 2 3 4 5 6
estimation
The same RISK level for

every analysis
Does it represent the
reality?
?
STOCK LEVEL DEFINITION :
UPGRADED APPROACH
Requested Information Team Output

Rate of Demand
(MTBF + Mtnc Interval.)

Optimum Point
Consequence of not 1. Cost - Risk
Impact, Risk and
having the spare part Based Item

Cost $/Yr
($) Selection for

inventory
Supply Logistic
& 2. Cost - Risk
Repair feasibility 0 1 2 3 4 5 6 7 8 9 10 11 12 Based Quantity
No. of Spare parts in Stock Estimation
Cost of Risk Costs
Purchasing &
Warehousing

OPTIMIZED SPARE PARTS INVENTORY
RISK BASED CRITERIA
• Stochastic Demand
– Redundancy Scheme
– Population
– Rate of Demand (from partners, bibliography, other facilities)
– Impact on Operations / Risk
– Delivery Time
– Premium Possibility + Costs Associated
– Probability of successful Repair @ home / Time to Repair
– Material Cost
– Administration Cost
– Return of Investment
– Obsolescence
• Assurance of Spare Parts Capital

– Redundancy Scheme
– Impact on Operations / Risk
– Delivery Time
– Obsolescence
OPTIMIZED SPARE PARTS INVENTORY
RISK BASED CRITERIA
RISK = PROB. OF OCCUR. * CONSEQUENCES
CRITICALITY RELIABILITY RELIABILITY

ANALYSIS (CA) CENTERED AVAILABILITY AND
MAINTENANCE MAINTAINABILITY
(RCM) (RAM)

CRITICALITY
ANALYSIS (CA)
RELIABILITY MANAGEMENT PROGRAM;

KEY ELEMENTS
Criticality Analysis
1 3 0 80 55 0
2 5 18 99 146 17
3 2 5 90 135 5
Probability Ranking
4 9 128 1004 700 146
5 18 690 1913 600 21
E D C B A
Consequence Ranking

RELIABILITY How can asset fail?
Most Probable Failure Mode?
CENTERED What happens if it fails?
MAINTENANCE
Start
Impact if spare part is not Hidden
YES
NO Safety or
Environment
YES
NO Loss of
Production
YES
NO Only Maint.
Costs
YES
(RCM)
CONDITION BASED
available?
CONDITION BASED CONDITION BASED CONDITION BASED
SCHEDULED SCHEDULED SCHEDULED SCHEDULED

RESTORATION RESTORATION RESTORATION RESTORATION

DISCARD DISCARD DISCARD DISCARD
FAILURE ONLY JUSTIFIED NO SCHEDULED

COMBINATION
FINDING (TESTING) REDESIGN MAINTENANCE
REDESIGN ONLY JUSTIFIED

REDESIGN
REDESIGN
FMEA
Maintenance
Plan
This template can be applied to the following equipments: Screw Compressor
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Main
Company System Family Equipment Equipment OREDA Failure
System Equipment System Family Equipment Family Function Functional Failure Failure Mode Severity Root Cause
Area Code Tag Description Code Pattern
Tag
To elevate the pressure of

Screw
low pressure gas and to It doesn't elevate the low Free end
MPP Screw Compressor 345 Rotational Gas Screw Compressor High vibration VIB C Age
send it to the Amina Unit of pressure's gas pressure. bearings wear
Compressor
the Plant MPP.

Screw
low pressure gas and to It doesn't elevate the low
MPP Screw Compressor 345 Rotational Gas Screw Compressor High vibration VIB C Bearings wear Age
send it to the Amina Unit of pressure's gas pressure.
Compressor
the Plant MPP.

Screw Coupling failure
MPP Screw Compressor 345 Rotational Gas Screw Compressor High vibration VIB C (Compressor - Age
Compressor Electric Motor)
the Plant MPP.
Screw Coupling failure
MPP Screw Compressor 345 Rotational Gas Screw Compressor High vibration VIB C (Compressor - Age
Compressor Electric Motor)
the Plant MPP.
To elevate the pressure of Supports and
Screw
low pressure gas and to It doesn't elevate the low subjection
send it to the Amina Unit of pressure's gas pressure. system
Compressor
the Plant MPP. deterioration
To elevate the pressure of Gas

Screw
low pressure gas and to It doesn't elevate the low compression's
send it to the Amina Unit of pressure's gas pressure. screws
Compressor
the Plant MPP. deterioration.
Slide Valve
Screw failure
MPP Screw Compressor 345 Rotational Gas Screw Compressor High vibration VIB C (Compressor Random/Age
Compressor discharge
the Plant MPP.
control)
Slide Valve
MPP Screw Compressor 345

Screw
Compressor
Rotational Gas Screw Compressor
low pressure gas and to
send it to the Amina Unit of
It doesn't elevate the low
pressure's gas pressure.
High vibration VIB C
failure
(Compressor
discharge
Random/Age
the Plant MPP.
control)
RELIABILITY
AVAILABILITY AND
RAM OSF RESULTS
MAINTAINABILITY
(RAM)
PFD’s, P&ID,Expert Opinion
Wells Production
Bayes
Bayes Information
Theorem Availability (A)
Evidence (Similar Production System)
Updated ABD Model

BS209
M AIN
PRODUCTION
(Availability Block Diagram)
,083
PL-10 PL-6
(MAROS, RAPTOR, RAMP3.4)
PL-2 PL-4
GASLIFT
PL-3 PL-1 RP-2 ,062
BYPASS
PL-5 PL/7-8 PL-9
,041
Generic Data (OREDA 2002)
PL-13 S-W PR ODUCTION

PL-11 GASLIFT
Updated
EAGLE-II RP-10
CL-12 BYPASS
,021
NORTH
BS-14
Failure
PRODUCTION
PL-12
PL-23
GASLIFT ,000
BS-16 RP-7 RP-6 RP-5
and
BYPASS
PL-18 PL-15
EAGLE-I
BS-22
BS-24 S498 RP-1

71% 78% 85% 92% 99%
Repair
Prior Knowledge
Prior Knowledge
EAST GASLIFT
PRODUCTION GP-1 S484 RP-4 SOLDADO
BYPASS FIELD
Rates
BS238 S244
RP-3
PL-21
S248 PL-17
GASLIFT
BYPASS
Pr (A< Target) Target

CL-8 PL-20 PL-19
CL-6
SENSITIVITY ANALYSIS
71% 78% 85% 92% 99%
E-002
P-011
V-004
EA- 001
2007 Reliability & K-001
Maintenance Conference Downside
Upside
RELIABILITY
AVAILABILITY AND
MAINTAINABILITY
(RAM)
Start
NO Safety or NO Loss of NO Only Maint.

Hidden
Environment Production Costs
YES YES YES YES

CONDITION BASED
CONDITION BASED CONDITION BASED CONDITION BASED
1
RESTORATION RESTORATION RESTORATION RESTORATION

DISCARD DISCARD DISCARD DISCARD
FAILURE ONLY JUSTIFIED NO SCHEDULED

COMBINATION
FINDING (TESTING) REDESIGN MAINTENANCE
2 REDESIGN
REDESIGN
ONLY JUSTIFIED
REDESIGN
3 RAM
3
44
5
PUMPING SYSTEM
Is the Spare
Inventory
Philosophy aligned
with Business
Expectations?
If spares are not
available when
needed, the loss of
OSF is accepted by
Owners &
Stakeholders?

RELIABILITY
AVAILABILITY AND
MAINTAINABILITY
(RAM)
RAM Criticallity Ranking Results

Scenario Base 20 Yr - Criticality
Group Avg Q % SD for Avg Q Avg
Hamaca Upgrader - 20Y 86.924 0.619
Element Description Criticality Avg F

1 57-V-005 Acid Gas - Flare Primary KO Drum 0.205
2 57-V-003 LP - Hydrocarbon Flare Primary KO Drum 0.205
3 57-V-001 HP- Hydrocarbon Flare Primary KO Drum 0.204
4 57-V-006 Acid Gas - Flare Secondary KO Drum 0.197
5 57-ME-003 Acid Gas - Flare Package 0.174
6 12-C-001 Coker Fractionator 0.157
7 12-K-001 Coker Gas Compressor 0.153
8 45-V-001 Fuel Gas Mix Drum 0.121
9 12-C-002 LCGO Stripper 0.095
10 15-EA-001 C Stripper Condenser 0.091
11 15-EA-001 B Stripper Condenser 0.091
12 15-EA-003 A Naphtha Splitter Condenser 0.091
13 15-EA-010 C Stripper Bottoms Cooler 0.09
14 15-EA-010 A Stripper Bottoms Cooler 0.09
15 15-K-001 A Make-up Gas Compressor 0.09
16 15-EA-010 B Stripper Bottoms Cooler 0.09
17 15-EA-003 B Naphtha Splitter Condenser
2007 Reliability & Maintenance 0.09
Conference
18 15-EA-001 D Stripper Condenser 0.089
Risk Cost Benefit;
Concept
Optimum Point
Impact, Risk and
Cost $/Yr
Risk
Costs
0 1 2 3 4 5 6 7 8 9 10 11 12
No. of Spare parts in Stock
IF THE PROPOSED NUMBER OF ITEMS CORRESPONDS TO:

1.- THE OPTIMUM POINT => MINIMUM BUSINESS IMPACT
2.- THE RIGHT OF THE OPTIMUM POINT => TOO MUCH EXPENDITURE
3.- THE LEFT OF THE OPTIMUM POINT => TAKING TOO MUCH RISK
Cost - Risk Optimization Model - Software
1800
1600
ALLAOWS OBTAINING THE 1400
RELATION BETWEEN THE COST 1200
AND THE RISK OF THE 1000
INVENTORY POLICY OF THE 800

600
ANALIZED SPARE PART.
400
200
Cost Risk 2007
10 21 32 43 54 65 76 87 98 109 10
11 11
12 12
13
SOFTWARE TOOLS FOR INVENTORY
OPTIMIZATION
Forecast: NORMAL
1.240 Trials Frequency Chart 1.219 Displayed
,029 36
,022 27
Uncertainty is
,015 18
addressed by
,007 9
,000
Mean = 13,41
0
running Monte
5,17 10,46 15,75
Certainty is 80,00% from 7,86 to 19,99
21,03 26,32 Carlo simulation
Forecast: URGENTE
with all potential
1.240 Trials
,027
Frequency Chart 1.212 Displayed
33
scenarios of
,020 24,75
reliability, risk,
,013 16,5
commercial and
,007 8,25
financial
,000
Mean = 11,68
0
parameters
2,04 7,72 13,40 19,08 24,76
Certainty is 80,00% from 6,01 to 18,37

STOCK LEVEL DEFINITION – ENHANCED
APPROACH
Process
Input Team Work
Rate of Demand
Drawing, P&Id, Experts
(MTBF + Mtnc Interval.)
Output
Optimized # of items
Consequence of not
Optimum Point
having the spare part
($)
Impact, Risk and
Cost $/Yr
Risk
Costs
5 6 7 8 9
Supply Logistic 95% Certainty
0 1 2 3 4 5 6 7 8 9 10 11 12
& Minimum Maximum

No. of Spare parts in Stock
Repair feasibility
RAM RCM CRITICALITY

Cost of Purchasing
& Warehousing
Software

STOCK LEVEL DEFINITION – OPTIONS
SPARE PARTS STOCK OPTIONS SELECTION IS ALSO A RISK BASED DECISION
NON STOCKED LOW CRITICAL / DIRECT PURCHASE WHEN NEEDED
IN COMPANY
LOW CRITICAL / BULK MATERIAL / CONSUMABLES
SUPPLIER
PARTS MANAGEMENT
CRITICAL / HICH TECH / OBSOLETE IN SHORT TIME
BY THIRDS
STOCKED CRITICAL / ASSURANCE OF FAST DELIVERY

STOCKED CRITICAL / ASSURANCE OF FAST DELIVERY
1800
1600
1400
1200
1000 RISK
800 COST
600 SPARE PART
400
200
0
10 2 1 3 2 4 35 6
4 75 8 6 9 7 10 811 12
9 13
10 11 12
INFLUENCE OF THE VARIABLES IN THE DECISION MODEL

RISK COST
• TIME OF DELIVERY • SPARE COST
• CONSEQUENCES IN SAFETY ENVIRONMENT • COST OF MAINTENANCE AND STORAGE
AND PRODUCTION LOGISTICS
• MATURITY OR OBSOLESCENCE OF THE • VALUE OF MONEY WITH TIME
REPLACEMENTS
• RELATION OF REPLACEMENTS INSTALLED IN
PRINCIPAL AND SPARE EQUIPMENTS 2007 Reliability & Maintenance Conference
Practical Case

Practical Case; Background
• Facility
– 2600 KEDC
– 250 KBPD Upgrader
– Oil Prices scenario: 20USD / Barrel (approx.)
• Methodology
– Project Team´s Approach
▪ Lump Sum Contractor established an Upgraded Approach
▪ Around 45 K USD
▪ Around 7.7K items
– Operator Team´s Approach

▪ Enhanced Approach
▪ Over 10MM USD as additional expenditures
▪ Around 75% of items needing adjustment on inventory parameters
(either increase or decrease)
▪ Reliability Management Plan delivered data for Inventory
Optimization
▪ Cost of the Optimization Study is extremely small when compare to
the risk to be mitigated.
Practical Case;
Results
OPTIMIZATION STUDY RESULTS MMUS$
Category # ITEMS Saving

Not Needed 482 2,06
More than Needed 2149 2,3
Optimum 1968 0
Less than Needed 3142 -4,4
TOTAL 7741

Practical Case;
Results
Items distributed by categories

Resultados Categorias Item s
6%
41% 28%
25%
Amounts of Money to be optimized
No requiere Superior Optimo Inferior
$2,055,895
-$4,401,329
$2,300,535
$0

Practical Case;
Results
$2,055,895
Risk associated
-$4,401,329
to the cost of the
money and
$2,300,535 warehousing
$0

Capital required to reach 149.890.519 US$
the optimum level of
Risk associated to the fact
spare parts in this
of not having the spare part
category
when needed
Practical Case;
Results
Results show that:
1. Around a 34% of the items
selected to be stocked were Cost – Risk of the items
with levels bellow
either no needed or the
of the optimum
amount on stock of such items
was higher than
recommended $149,890,519
160,000,000
RISK TO BE
2. Approximately 40% of the 140,000,000 MITIGATED
items were properly selected 120,000,000
100,000,000
but the amount on stock was 80,000,000
insufficient. It means that risk

60,000,000
INVENTORY
REQUIRED
was not properly mitigated. 40,000,000
20,000,000 $4,401,329
0
3. Optimization Study Cost is: 1
Less than 1% of potential COST RISK
savings
Practical Case;
Results
Other Cases of Study

RISK TO BE
AMOUNT AMOUNT
MITIGATED
ASSOCIATED TO ASSOCIATED TO
ANALIZED ASSOCIATED TO
COMPANY OVER MISSING COMENTARIES
ITEMS MISSING
INVENTORY INVENTORY
INVENTORY
$. $.
$
Study executed with
A 9240
7741 4,356,430.00
3,600,000.00 4,401,329.00
2,103,000.00 149,890,519.00 existing cataloguing
Study executed with
B 4000 903,000.00 1,370,000.00 41,636,255.00 existing cataloguing
Study executed with
C 9980 1,889,000.00 4,918,000.00 554,617,000.00 existing cataloguing
TOTAL 23,220 6,392,000.00 8,391,000.00 746,143,774.00

LESSONS LEARNED
1. Reliability and Risk analysis include into the decision making process
possible impacts on business the can be avoided with the proposed
inventory definition strategy.
2. The use of reliability techniques and risk analysis since early stages of
projects provide both, the guarantee for savings and the avoidance of
expenditures for parts not needed (no cost benefit justification)
3. The use of the stochastic behavior of different critical variables support

more accurate decisions. Stochastic approach considers most of the
possible scenarios for the analysis (from the most optimist to the most
conservative) and also provide most of the possible scenarios for
results.

RECOMMENDATIONS
• To consider and promote the introduction of reliability

techniques (i.e., Risk - Cost Benefit) to support decision
making processes during new assets projects and day - to –
day operation and maintenance work
• To set up a procedure to identify parts to be stocked and also

to define the inventory level for such parts always based on the
results of the previous system criticality ranking, highest impact
failure modes, maintenance strategy and financial (NPV),
commercial and operational parameters.
• Assure the involvement of reliability engineering concepts at

very early stage of capital projects, to assure the best
comprehension and integration of multi-skills teams around the
criticality schemes of systems and process plants.
RELIABILITY IS A DYNAMIC ISSUE
THAT REQUIRES A DAILY FOLLOW
UP AND………..
PROCESSES
PEOPLE
TECHNOLOGY
…..IF YOU THINK IT IS EXPENSIVE, 2007

GIVE IT A TRY WITHOUT IT.
Reliability & Maintenance Conference

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Technical Session:

Moving From Traditional To Risk Based

Hernando Gómez de la Vega

2007 Reliability & Maintenance Conference

2007 Reliability & Maintenance Conference

The goal is to match schedule & budget

When deterioration mechanisms arise

Keep Plants Running maximizing

PROCESS ENGINEER COST & FINANCE

PROPER SPARE PROPER PARTS AND

INVENTORY LEVEL INVENTORY LEVEL

2007 Reliability & Maintenance Conference

2007 Reliability & Maintenance Conference

The cataloguing consists of the description, nomination and numeration of

2007 Reliability & Maintenance Conference

Manufacturer + Maintenance + Procurement

The same RISK level for

Requested Information Team Output

(MTBF + Mtnc Interval.)

having the spare part Based Item

($) Selection for

2007 Reliability & Maintenance Conference

• Assurance of Spare Parts Capital

RISK = PROB. OF OCCUR. * CONSEQUENCES

CRITICALITY RELIABILITY RELIABILITY

2007 Reliability & Maintenance Conference

RELIABILITY MANAGEMENT PROGRAM;

5 18 690 1913 600 21

2007 Reliability & Maintenance Conference

Impact if spare part is not Hidden

SCHEDULED SCHEDULED SCHEDULED SCHEDULED

SCHEDULED SCHEDULED SCHEDULED SCHEDULED

FAILURE ONLY JUSTIFIED NO SCHEDULED

REDESIGN ONLY JUSTIFIED

This template can be applied to the following equipments: Screw Compressor

To elevate the pressure of

To elevate the pressure of

To elevate the pressure of

To elevate the pressure of Gas

MPP Screw Compressor 345

Updated ABD Model

PL-5 PL/7-8 PL-9

PL-13 S-W PR ODUCTION

BS-24 S498 RP-1

Pr (A< Target) Target

71% 78% 85% 92% 99%

NO Safety or NO Loss of NO Only Maint.

YES YES YES YES

SCHEDULED SCHEDULED SCHEDULED SCHEDULED

FAILURE ONLY JUSTIFIED NO SCHEDULED

2007 Reliability & Maintenance Conference

RAM Criticallity Ranking Results

Element Description Criticality Avg F

No. of Spare parts in Stock

IF THE PROPOSED NUMBER OF ITEMS CORRESPONDS TO:

INVENTORY POLICY OF THE 800

2007 Reliability & Maintenance Conference

& Minimum Maximum

RAM RCM CRITICALITY

2007 Reliability & Maintenance Conference

SPARE PARTS STOCK OPTIONS SELECTION IS ALSO A RISK BASED DECISION

NON STOCKED LOW CRITICAL / DIRECT PURCHASE WHEN NEEDED

STOCKED CRITICAL / ASSURANCE OF FAST DELIVERY