INTRODUCTION

1.1 Spare Parts Inventory Control – Meaning

To establish a common understanding, ‘Spare parts’ refers to the

parts requirement for keeping both owned equipment/machine or

service needs of customers in healthy operating condition by

meeting repair and replacement needs imposed by breakdown and

preventive maintenance. The term spare parts in this study

therefore, is used to connote both spare parts and service parts

as applied to a firm handling both internal and

external spare and service needs. On the other hand, ‘Inventory

Control’ refers to the management of the supply, storage and

accessibility of items, in this case spare parts, in order to

ensure an adequate supply without excessive supply.

Spare parts inventory models differ substantially from regular

inventory models. The key reason for this difference is that

spare parts provisioning is not an end in itself, but a means to

guarantee up-time of equipment. With respect to spare parts

inventory, the customer’s sole interest is that his systems are

not down due to lack of spare parts because equipment downtime is

lost production capacity.

1.1.1 Large Revenue and Investment on Spare Parts Inventory

In today’s technological environment, the importance of aftersales

service which basically concerns the use of spare parts for

maintenance purposes, is high. Lost revenues due to disservice

are enormous. Not only is after-sales service valuable as a

competitive advantage for manufacturers and service providers,

direct revenues in this service are also remarkably high.

Companies that provide the after-sales service have to invest a

lot on spare parts inventory. In 2006, Koudalo1

investigated

revenues of spare parts in the service business over a period of

one year, and he reports combined revenues of more than $1.5

trillion. Flint2

stated that the world’s spare parts inventory in

the aviation industry in 1995 amounted to $45 billion at that

time. Any means to downsize this stock, without decreasing

customer service, would be more than welcomed by the aviation

industry. Also in other industries, large amounts of money are

invested in spare parts inventory and this has increased over the

years. Heather3

reported that the spare parts market of U.S.

represents $700 billion and 8 percent of the U.S. gross domestic

product. Many manufacturers find that profit margins for services

can top 40 percent, whereas margins for finished goods top out at

around 13 percent. Cohen et al4

and AberdeenGroup5

also report

that profitability in service is much higher than profitability

for initial products. Because of these large amounts of money

involved, savings of a few percent only constitute large cost

savings in absolute terms.

The above indicates that the control of spare parts for aftersales

service deserves substantial corporate attention, which is

even more true, since customer requirements have tightened.

AberdeenGroup5

indicates that 70% of the respondents in its study

have seen service response times as required in service level agreements shrinking to 48 hours or less, and Koudalo1
states
that customers keep raising the bar for service excellence by
requesting shorter lead times, higher service levels, lower
costs, and better customer service support.
1.1.2 Overview of the Case Study
The first insight on the importance of spare parts inventory
control by the researcher was made while carrying out another
study, Okonkwo6
, on stochastic queueing behaviour of vehicles in
a maintenance workshop which eventually resulted in the
development of a computer software: Ugoo Multi-Purpose Computer
Qeueuing Model Simulator (Ugoo MC-QMS).
However, the primary motivation that finally triggered off this
research is an experience with the spare parts complex of a
leading motor assembling/manufacturing company in Nigeria. The
Anambra Motor Manufacturing Company (ANAMMCO) Enugu, Nigeria –
This company is a product of a joint venture of the Federal
Government of Nigeria and Daimler-Chrysler of Germany, and was
commissioned in 1980. The spare parts complex of ANAMMCO provides
considerable after-sales service which is impacted significantly
by the spare parts control. The company has a very large spare
parts complex that stores and manages spares various models of
Mercedes Benz heavy duty vehicles. Specifically, besides the
selling of vehicles, the spare parts of various models of heavy
duty vehicles listed below are stored and managed by the company.
Trucks: MB-711, MB-1418, MB-1520, MB-1518, MB-1720, MB-1620,
MB-1718, MB-1634, MB-2423
Actros: MB-2031, MB-2035, MB-3340, MB-4031

Freightliner: MB-M21126X4, MB-M21124X2
Axor: MB-1823
Buses: MB-712, MB-812, MB-1721, MB-O400, MB-O500
The management of these models which is complex was further
complicated by the vast number of parts required in each model.
In fact, more than 30,000 active parts needed to be controlled.
The management of these parts can only be done with the aid of a
computer, hence the spare parts complex has a computerized spare
parts inventory database. Each of the parts that is supplied or
replenished is continuously keyed into the computer and the
inventory stock parameters are updated automatically.
The company uses two software for its inventory control. The
first is the Electronic Parts Catalogue (EPC) which is used to
identify the part number of the spare parts. Once the engine and
chassis number is inputted, it invokes a dialogue box from where
spare parts section is selected and from the pull down menu, the
particular spare part is chosen. The software will search and pop
up the part number of the spare part, a 3-D AutoCAD drawing of
the required part, a CAD drawing guide on how it can be fixed
into the vehicle and in some cases an alternative part to be used
in case the said part is out of stock. From the part number, the
location of the spare parts in the stock room is identified. The
second software is Integrated Dealer Importer System (IDIS). It
is a software that determines the stock level for each part in
the stock complex. It has a database showing the orders and
replenishments that have been made. It also indicates when to
replenish and the quantity. It uses continuous review (r,Q)
inventory policy. It should also be noted that the complex observes the well known A-B-C classification in its spare parts
inventory.
The company faces two major demands of spare parts from the
complex, the first is demand from the maintenance section of the
company. The second is from the external customers that directly
buy spare parts from the complex for their personal use. Demand
from the maintenance section is as a result of spare parts
demands for maintaining their vehicles, for maintaining aftersales
service of vehicles whose owners had service level
agreement with the company as well as those that just take their
vehicles to their maintenance workshop for either regular
servicing or for repairs when they have broken down completely.
Notwithstanding the fact that the company’s inventory system is
computerized, yet the computerized system does not observe
service differentiation through rationing and demand lead time.
However, in some exceptional cases, the company observes demand lead time manually though, But, more than ever before, this method can no longer withstand the challenges of modern standards of spare parts inventory control. These standards have risen to such levels that it is difficult, if not impossible to attain it by manual form of optimization.
Therefore, this study provides improved models which when
implemented, find solution to the company’s spare parts network challenge. These models will not only provide immediate and significant benefit to the company under study, but can be adapted to very many other systems.

1.1.3 Introduction to Service Differentiation