Topic 2 notes

Equipment: An item of equipment is a tangible asset held for use in the production and supply
of goods and services. Equipment items are identified by a unique reference number and can be
readily disassociated from the system and used to provide their normal function apart from the
system.
Spare Part: A spare part is an interchangeable component of an item of equipment, and can
also include a complete (uninstalled) item of equipment.
Capital Spare: A capital spare is a spare part that meets the Company criteria for
capitalisation, ie:
• The cost of the spare is greater than the capitalisation threshold
• The expected normal useful life of the spare is greater than 1 year
Inventory Spare: An inventory spare is a spare part that does not meet the Company criteria
for capitalisation, ie:
• The cost of the spare is less than the capitalisation threshold, or
• If the cost of the spare is greater than Capitalisation Threshold, its expected life is less
than 1 year.
Proprietary Spare: A proprietary spare is a spare part that can only be procured from the
Vendor of the equipment. Proprietary spares are usually designed by the Vendor and uniquely
associated with the equipment for which they are a spare part.
Generic Spare: A Generic spare is a spare part that is generally available in the marked.
Generic spares are usually purchased by the Vendor from another supplier.
Wear Spare: A Wear spare is a spare part that has a normal useful life that is lower than that
of the associated equipment, or that is replaced as part of routine maintenance activity.
Insurance Spare: An Insurance spare is a spare part for a component that is not normally
expected to fail or require replacement in normal service.
Construction Spares: Construction spares are parts required by the Contractor in the
performance of the work required to achieve plant mechanical completion.
Commissioning Spares: Commissioning spares are parts required by the Contractor in the
performance of the post-completion and the pre-start-up and commissioning activity.
Bill of Materials: A bill of materials is a complete listing of the spare parts available for an item
of equipment.
Task List: A task list is a listing of the spares required for particular specified maintenance
activities.

There are three main criteria that should lead to a decision to hold a spare part in a
local warehouse:
 It is cost effective to hold the spare part in a warehouse
o Bulk discounts are available
o Suppliers are remote
 The lead time (the time taken to obtain the spare part) is greater than the demand
time (the time between the identification of the need for the spare and the
requirement for it to be available for use)
 The part has a shelf life that is longer than the expected interval between use
Spare part stocking decisions can be influenced by criticality at two levels:
1. The Criticality of the equipment for which the spare is stocked
Equipment Criticality is established from the Risk Matrix as described in Module ENM310
2. The Criticality of the spare to the equipment, typically at three levels:
 Critical – the equipment will not operate without the spare
 Semi-Critical – the equipment can operate without the spare but on a hardship basis
 Non-Critical – the equipment can operate normally without the spare
Selection of Spare Parts to Stock
1. The vendor should be requested to provide the full spare parts list
2. Insurance Spares can be established from an understanding of Equipment Criticality and
Spare Part Criticality, the Maintenance Plans are not needed
3. Normal stock levels for Insurance Spares should be one set – Insurance Spares are not
expected to be used frequently
4. Wear Spare requirements can only be established after the equipment criticality studies are
complete and the maintenance plans are established
5. Computer algorithms are available to support the establishment of stock levels. The approach
differs for low value (inventory) and high value (capital) spares

When the spare parts have been identified, and all relevant data recorded in the system, it is
helpful to check for common / duplicate items prior to the allocation of stock numbers

Establishment of stocking quantities relies on an understanding of:

 The supply parameters – lead times, bulk discounts, shelf life, minimum order quantities
 The demand parameters – likely frequency of use, set size, criticality
General guidance should be to stock:
 One set for Insurance Spares
 Sufficient for 2 years anticipated use for Wear Spares
Techniques for optimising stock levels include the following
• Reduction of lead times (internal and external)
Here the organisation reduces the time required to obtain spares, both in internal processes
for order placement and in reducing supplier lead times
• Vendor Managed Inventory
The ownership of stock is transferred to a third party. Third parties are better placed to
exploit commonality and can also be expert in stock management systems
• Review of non-moving items
Care is needed for insurance spares as these are not expected to have frequent withdrawals,
but savings are possible if wear items are not used as often as expected

Techniques for optimising stock levels include the following

• Review of stocking policy
 Given that initial decision are taken during plant design, it is often appropriate to review
arrangements as supplier capabilities mature
• Review of common items and standardisation
 Common items are not always identified during initial stocking data collection, and later
savings are possible.
 Standardisation of components can generate increased commonality levels, but care is
needed with regard to vendor warranties
Spare Parts Replenishment
• For Capital Spares, replenishment is generally undertaken as a direct and considered
decision after the spare has been used.
• For inventory spares, replenishment can be partly automated and follows the process
illustrated

Benchmarking of Spare Parts (within an organisation)

1. The value of the spare parts as a percentage of the gross plant value (This benchmark is
normally applied for Inventory Spares and target levels are in the range 1.5% - 2.0%)
 Stock turns: This benchmark looks at the value of items withdrawn and consumed within
a period divided by the total value of spare parts