Tending Your Parts Inventory

A well-maintained parts inventory can make a world of difference when it comes to equipment downtime and more. Here's a look at how you can best manage your garden of parts.

BY KENT KISER

Kent Kiser is associate editor of Scrap Processing and Recycling.

Every scrap recycler has heard the horror stories—the shredder that was idled for two days for lack of a $35 part, the cable crane that was rendered useless because there was no wire rope in inventory, and the magnet that died and could not be revived because no spare lead wires were on-site.

What do these stories have in common? They're the result of parts inventory problems, which, unfortunately, can be quite common in this industry. "When it comes to parts, many processors simply put out fires as they come up," says Jack Matchett, manager of the National Association Supply Cooperative (NASCO-OP) (New Philadelphia, Ohio). "They order a part only when they need it."

One reason for this, according to many recycling executives—particularly those at smaller firms—is that they must wear so many hats that they don't have time to be parts manager too, so that job often falls through the cracks. Then there's the issue of money. Let's face it, buying spare parts can be expensive, and most recyclers can't afford—or don't want—to have thousands, even hundreds of thousands, of dollars tied up in parts. Still, a well-planned and -managed parts inventory strategy is important to the efficiency of any recycling operation. It can mean the difference between production and downtime, between a well-run operation and one that's just running, many recyclers assert.

Inventory Basics

Contrary to what some might think, managing an effective parts inventory isn't difficult and it doesn't mean having a warehouse full of every imaginable part. In fact, attention to parts management can reduce the number of items you need on-site, thus lowering your inventory costs. More important, having the right parts on hand can minimize, even eliminate, equipment downtime due to parts problems.

On its most elementary level, developing a parts inventory strategy is an exercise in predicting, with a high degree of certainty, which parts you'll need and when you'll need them. Unfortunately, there's no one-size-fits-all method for doing this since every recycling company's needs are different. Many firms, however, can follow the minimum/maximum system whereby they let their parts stock dwindle to a specified minimum point before reordering to restore the inventory to the maximum level. Others adhere to a stricter regime of replacing an inventoried part as soon as it is taken from the shelf, which keeps the stock at a constant level.

Still, how do you determine which parts, and how many, to have on hand? "In short, what you try to do is stock the parts that go bad the most or that take forever to get," says Jim Armstrong, purchasing agent for Tube City Inc. (Glassport, Pa.). An operations manager in the industry offers similar advice, noting that his firm maintains "a six-month supply of the most important, heavy-use parts, such as shredder hammers and shear blades. In addition, we maintain a spare of all `shut-down' items—that is, those parts that could idle an operation if they failed."

Matchett advises recyclers to always keep certain small, yet important, parts in stock, such as torch tips, wire rope, nuts and bolts, and hydraulic hose. "These are little items that can shut down an operation, or an entire yard," he says. "It's ridiculous to have an expensive piece of equipment become totally idled for lack of a $10 part, but I've seen it happen for years." Others emphasize the importance of keeping key replacement parts on hand for machines made by foreign manufacturers, as such parts can be difficult to obtain quickly. It's also critical to consider certain worst-case scenarios, such as when two machines would need the same part at the same time.

When planning your parts stock, it may also be helpful to figure in the following factors:

• the type and number of pieces of equipment you operate. Machines such as shredders and shears are more parts-intensive than, say, hydraulic cranes, and operations with 20 pieces of equipment will naturally need a larger parts inventory than a firm with five machines.
• the life expectancy of certain parts. A part that wears out in two weeks will be a more common item in your inventory than a part that's replaced every two years. Don't hesitate to ask equipment manufacturers what they consider to be the normal wear-and-tear parts on their machines, as this can help you decide which items to stock.
• whether or not you lease equipment. In many cases, the leasing company may be responsible for providing parts, repairs, or loaner replacements for broken machines, so you would not need to maintain parts for such equipment.
• the size of your operation. When it comes to parts, larger operations can have some advantages over small ones in that they may be able to hold a vast supply of parts, compensate for idled equipment by using another on-site machine, borrow a part from another company-owned plant, or have an on-site machine shop that can fix old parts or make new ones.
• the delivery time for new parts. Some parts can be obtained quickly through special 24- or 48-hour delivery programs. This immediate service gives recyclers much-needed "parts insurance" in times of emergency and saves them from having to stock certain items. The disadvantage of relying on quick delivery is that it can add to the cost of parts, sometimes significantly. "If you don't have a part on hand and you want immediate response from a manufacturer or distributor, they might charge you an arm and a leg," says NASCO-OP's Matchett. "That's the price you'll pay for wanting it right now." And when it comes to specialized parts such as shredder hammers and rotors, quick delivery can mean weeks or months—which can spell disaster when a critical machine is affected. Tube  City resolves this problem through prudent ordering, Armstrong notes. "We'll place an order for 200 shredder hammers, and when they arrive, we'll immediately place a new order for an additional 200 hammers," he explains. "That way, we usually end up with one change of hammers left when the new ones come in."

The Computer Connection

To manage a parts inventory well, you must be able to manage the information related to your parts, recycling executives point out. Many scrap firms still keep track of their parts data manually, using index cards, files, even calendars to organize all the pertinent information. Such systems can be effective, but in many cases they are problems waiting to develop. "Our old inventory methods were rough and not very accurate," recalls Mark Sellers, executive vice president of Convervit Inc. (Hagerstown, Md.). "We used to keep our inventory with pencil and paper, and we did it whenever we thought about it. Sometimes we'd forget to order a part. Sometimes we'd hold off from ordering a part to save our cash flow, and then we'd forget about it. Our mistakes would always catch up to us eventually."

In the last 10 years, more and more companies have been using computers to manage their parts inventories. As a result, some say, these systems have helped them keep better track of information such as

• when to order parts. Computer systems can be programmed to indicate which parts to order daily, weekly, or monthly. "Our computer tells us every day what we have to order based on the last 12 months' usage," notes one operations manager.
• which manufacturer or distributor supplied each part.
• when new parts were received, as well as when and why old parts were replaced. This information can be invaluable when it comes to what one executive calls "warranty recovery," explaining that "the computer keeps track of when we put a part on, which enables us to quickly determine if that part is still under warranty."
• how much each part cost. This information, weighed against the longevity of the part, can help recyclers determine which brands of parts are best in terms of cost vs. performance.
• which parts and how many are in stock, as well as where they are located. This can help you avoid buying parts already in stock, purge obsolete parts from your inventory, and find a part quickly, which can be crucial in times of need. One shredder operator reportedly suffered two days of downtime for lack of a part that he could not find—yet later discovered—in his inventory.

Since replacing a part is a maintenance activity, many parts experts say the best way to manage a parts inventory is to make it part of your company's larger maintenance-costing program. Such an integrated approach would enable you to monitor not only the parts you have in stock, but also your purchase orders for new parts, work orders on equipment, and preventive maintenance activities—all in the context of your overall maintenance system. Keeping up with this data can be an imposing task, but specialized computer programs can ease the process, as Conservit has found since it computerized its maintenance operations several years ago. "Now we have a handle on our inventory," Sellers says. "It's rare that we need a part and don't have it."

Before plunging headlong into the world of computer-managed inventory, however, consider these points: First, there's the cost of the computers and programs, though one vendor is quick to ask, "How many times do you have to `double-buy' parts before a computer system pays for itself?" And second, tracking parts inventory by computer is not necessary for every scrap company. "You don't need a computer if you're on top of your inventory and make sure you have your vital parts on hand," Sellers says. Rob Sutton, operations manager for Shredders Inc. (Birmingham, Ala.), agrees, adding, "Our inventory process is so straightforward and right in front of our faces that I don't see why a computer would be necessary." One computer executive replies, however, "If you're big enough to have a separate parts area at your facility, then you're big enough for a computerized inventory system, in most cases."

After you've settled on how you want to maintain your inventory, you still must decide who should manage the system. Many large recycling companies have a separate purchasing department with several employees, while smaller firms may have their operations manager handle the parts duties among other responsibilities. In other instances, supervisors of individual operations—say, a shredder or a shear—are put in charge of monitoring the parts required for their machinery and coordinating the needs with a central parts manager. "Your employees have to work together," says Sutton. "You're basically only as good as your team."

Whatever approach is chosen, there should be at least one person who knows the inventory status and ordering needs of all operations. It's also important to instill a sense of responsibility and accountability in every employee involved in the parts process, scrap plant operators note.

Getting Creative

Maintaining a parts inventory can be a more imaginative process than simply buying parts and storing them in an on-site warehouse. Some recyclers, for example, have come up with creative ways to reduce the hassles related to the cost, delivery, and management of some spare parts. Here's a sampling.

Blanket orders. In these arrangements, manufacturers will make, say, a year's supply of shear blades or shredder hammers for a scrap customer, but it won't send the entire load to the customer all at one time. Instead, the manufacturer sends the parts out as needed, or on pre-specified dates, and the recycler only pays for the parts as they are received. While blanket orders don't take the best advantage of freight, as would one large shipment, they do spread out the expense of buying parts. In addition, by ordering a year's supply of parts, recyclers usually get a price break, and parts suppliers will often hold prices for the term of the blanket order contract.

Group purchases. In some instances, several companies will become joint buyers of big-ticket items such as shredder rotors and motors. In these arrangements, whichever firm needs the equipment first gets to use it, but must immediately send the old equipment to be repaired. When the old equipment is returned to service, the jointly owned equipment would be removed, checked out, refurbished if necessary, and made available for the next partner that needs it.

Parts sharing. It's not uncommon for recyclers in the same region to provide parts to each other. "If we need a part in an emergency," says one shredder operator, "we can call another firm in the area and they'll lend us the part until our replacements come in." These cooperative arrangements may seem anomalous in the competitive scrap recycling industry, but as the operator notes, "We're all hard-nosed businessmen, but we're not sharks, we're not ruthless. We help wherever we can."

These practices all offer the added benefits of helping recyclers reduce their parts costs, as well as the quantity of parts they must hold in stock. Reducing inventory, in fact, is a growing trend among recyclers. "We try to keep minimal quantities of everything," one scrap executive remarks, speaking for many others. "As in the automotive and steel industries," explains a parts manufacturer, "just-in-time delivery of supplies is becoming more important in the scrap industry to keep cash flow going."

Recyclers have also sought to pare their parts stocks to help them weather the economic recession in recent years. "When business is good, you tend to have more parts on hand because a breakdown is more costly in terms of lost production," one scrap executive observes. "In lean times, you're usually a little sparcer on inventory."

Whether you have a sparce or voluminous stock of parts, a small or large company, or manual or computer-automated operations, the one factor that doesn't change is the need to manage your inventory effectively. If you accomplish this, you move your parts inventory from the realm of crisis management into the world of maintenance management.

Establishing a "quality" parts inventory is no mystery; it simply requires attention to detail and a dedication to cost-containment. If you do it right, you'll reap the rewards of reducing your inventory costs and experiencing less—if any—downtime related to parts failure. In the future, perhaps there may even come a day when there's no such thing as a "parts crisis." •