143 | P a g e
FRAME WORK FOR SPARE PARTS INVENTORY COST OPTIMIZATION AND ADEQUACY IN STOCK CONTROL MANAGEMENT USING TECHNIQUE OF
MULTI UNIT SELECTIVE INVENTORY CONTROL: PERSPECTIVE TO DOWNSTREAM
PLANTS OF PETROLEUM INDUSTRY
Sandeep Sharda
1Dr. Vijay Kumar Gorana
21Research Scholar, 2Professor, Department of Mechanical Engineering, Rajasthan Technical University, Kota, Rajasthan, (India)
ABSTRACT
Study reveals there is still need for work and research with improved techniques for Spare Parts inventory management to optimize stocking cost and ensure in time availability of spare parts. We consider downstream plant of petroleum which includes Ethylene, Ethylene Glycol, Polypropylene, polyethylene & utilities located at same location of unit. E.g.: Reliance Industries in India & SABIC affiliates at Saudi Arabia. Since these plants include huge numbers of rotary equipment like centrifugal pumps, compressors with its subassemblies. Basic problem encountered for stock control and cost optimisation while working as inventory controller with industries includes:
a) Situations, in absence of planned standard procedure for spare parts stocking system (SPS) leads to progressive deviations in the supply chain of spare parts since indenting to stocking in warehouse.
This paper presents the implementation of an integrated selective inventory system named as Multi unit selective inventory control system (MUSIC).
b) MUSIC analysis includes matrix model which are based on equipment criticality i.e. VED analysis, annual consumption values i.e. ABC analysis and consumption rate i.e. FSN analysis. The conceptual study and frame work analysis is admitting with data taken from SABIC affiliates.
Keywords: ABC, Criticality of equipment, FSN, lead time, MUSIC-2D/3D selective inventory control
I. INTRODUCTION
The present study is conducted with reference to downstream plants of petroleum industry with conceptual data frame work and also available few data from SABIC affiliates Company, Kingdom of Saudi Arabia. With a reference to petrochemical plants in a campus, based on the normal practice the stock level cost of spare parts 2- 4% of the plant cost. Average Cost of a Petrochemical Complex about $36.0 billion 2015[1].Include two
144 | P a g e ethylene and a propylene plant, Hence needs a rigorous exercise for spare parts stock control to minimize spare parts inventory cost for the company. The Inventory of an Industrial firm generally comprises thousands of items with Diverse Price, Usage, Lead Time, procurement & Technical aspect. Hence, Organization has therefore to be selective in its approach to control its investment in various types of stocks & Inventories. Such a systems is known as selective Inventory Control System. [2]
Multi unit selective inventory control is one of the analytical techniques which provide a sound basis for diverse degree of control at different levels of supply chain management of spare parts since indenting to ware house stock. [3]. This reduces high levels of stocks for items of slow consumption and also intern high inventory cost which stay for longer duration like pump impellers, shafts, hard parts of mechanical seals, spindle of Control valves, valve seat for PSV’s and at the same time reduces stock out conditions for some of spare parts items which needs for regular maintenance (preventive, predictive, shutdown as well as some time breakdown) like pumps soft seal parts, coupling pads, filter elements, compressors labyrinth seal, packing’s, oil filter elements, valves packing’s , special nut bolts, tilting pad bearings, electrical relays, circuit breakers, control valve packing , Soft parts for auto recirculation valves and soft parts for in line valves.
Figure 1: Supply chain process of Spare Parts Management
145 | P a g e TABLE 1: Selective Inventory Control Categories and Criteria [4]
S No. Category Criteria Application
1. ABC Analysis Annual usage value (consumption rate*Price Rs/piece)
For materials which go into Production
2. HML (High,
Medium, Low) Analysis
Unit Price To keep in check highcost items
3. VED (Vital,
Essential, Desirable) Analysis
Criticality or loss of production For controlling maintenance
of spare and manufacturing equipments.
4. SDE (Scarce,
Difficult, Easy) Analysis
Procurement difficulties: geography, Reliability, etc. Source of
Procurement
To keep vigil on availability,
should be kept in stock keeping in mind difficulty of procurement and may follow forward buying
5. GOLF (Govt.,
Ordinary, Local, Foreign) Analysis
Govt.-lead time more for retrieval,
advance payment Foreign-procedure long, through bank, port, permission, duty, etc.
Government supplies need patience to get material,
canalizing agency can be used, foreign procurement lead time factor
counts 6. SOS (Seasonal, Off-
Season) Analysis
Soya bean, farm produce, high off season price, low in harvest season
Should buy in harvest season
to get price and for shut down procurement of advantage and good quality supply
7. FSN (Fast, Slow and Non-moving) Analysis
Issues from stores give idea. Dispose off non-moving inventory
Fast moving items should be kept in high levels 8. XYZ Analysis (use
for 2-D study)
Closing stock value of inventory at the time of physical stock verification
A category status, e.g. A category in X: Watch C category in X: Reduce stocks 9. MUSIC-3D (Multi-
Unit, Selective, Inventory, Control) Analysis
The control criteria of 3- dimensions are finance operations and materials
Can be used for all varieties
of materials. It is a combination of all the above analysis.
A systematic approach has been adopted to identify the inventory management problems of the downstream of petroleum plants and to recollect necessary recommendations for improving the inventory management system. ABC, VED, and MUSIC (3D) analysis and their combination along with stock level XYZ and FSN anal ysis are used to analyze the inventory problems. [5]
1.1 Objectives of study
For the above it is conceptualize after review of papers that Technique of MUSIC inventory is one of the methods by which following could be achieved:
1.1.1 Distinguish for stocking levels for spare parts inventory o f similar type of equipment which are having different critical service and consumption rate and hence reducing cost of inventory
1.1.2 Dedicated technical review by owners simultaneously during project stage to overcome high quantities recommendation of line items by supplier and/or PMT and at the same time the items not covered and needed as spare parts during commissioning or at later stage.
146 | P a g e 1.1.3 MUSIC analysis will reflect recommendations to overcome progressive variations in
Stocking for supply chain management of spare parts since indenting to ware house.
II. LITERATURE REVIEW
The variety of research in the field of inventory theory is very huge. In this a brief literature survey is given which gives reviews on various reports of inventory control practice in the form of case studies published in academic journals. During the last decades, a number of inventory control case studies have appear in the academic literature, reporting applications mostly in the electronics, chemical, and automotive industries.[6]
2.1 FSN analysis in a Petrochemical Plant [7]
Mr. Gelders and van Looy , who present various inventory policies both for slow- moving and fast-moving items in a Petrochemical plant with around 22,500 SKUs.
2.2 Computerized Inventory Management large chemical plant, Belgium [8]
Study was conducted by Vereecke and Verstraeten, described an algorithm for the implementation of a computerized inventory management system for spare parts in a large chemical plant, located in Belgium. The spare parts inventory contains about 34,000 different types of items, 90% of which have demand frequency lower than 4 times a year
2.4 Criticality of Spares [9]
Study was conducted by Prakash, Ganesh, and Rajendran to categorize the parts using a variety of partitioning techniques that complemented the use of good forecasting procedures including ABC analysis, FSN analysis and VED analysis
2.5 Matrix analysis of ABC & HML [10]
Frame work was carried out to maintain and control the optimal level of inventory using combination of ABC & HML analysis on an eclectic multiple unit ( EMU) manufacturing industry, by Shibamay Mitra, Sujit Kumar & Papiya Bhowmik ,. For this study, they found that the priorities of the items change according to different inventory analysis techniques.
2.6 Use of Different software for stock level and Reorder point indication [11]
It has been mentioned by Onwubolu that Software tools like EFFN, AHP, COCOMOII, C#.NET, MATLAB and Visual Basic program integrated with ERP systems re are various inventory management tools that enables the user to find the best way to manage inventory
2.7 ABC Analysis with EOQ Technique for multiple products production company [12]
Evaluation was carried out by Kuo-En Fu, Wei-Zhen Chen, Lon-Chen Hung for raw material inventory control model for the most important multiple products production in the company X. ABC analysis the inventory control technique is first considered to distinguish the most important multiple products and then economic order quantity (EOQ) for each product is set up to find their inventory model equation.
2.8 Refurbished spare parts to reduce lead time [13]
147 | P a g e Spare parts like mechanical seal for pumps and valves seat, disc and spindles could be repaired in both cases as lead time for procurement is more as well as reducing the cost. This means that instead of ordering them new at the supplier, the defect parts are repaired themselves.
III. Problem identification and basis of study
3.1 Problem identification
Based on the above review of Journal papers, books and with practical problems encountered while working with Petrochemical and fertilizer plants as inventory controller are as below:
3.1.1 Above study are based on the sectors like Automotive, Mechanical Manufacturing, & chemical plant not covering detailed analysis for downstream of Petroleum plants specially Petro-chemical and fertilizers, which consists of huge variety of line items of spare parts and also quantity.
3.1.2 Study mainly covering Selective inventory analysis for raw materials & finished products
3.1.3 Study conducted for MUSIC are based on mainly 2D (2 dimensional) analysis i.e combination of two Selective parameters like ABC with VED and /or ABC with FSN analysis.
3.2 Basis of study
3.3 This paper will cover the frame work for spare parts optimization and inventory cost which is based on 3.2.1 Conceptual standard procedure with assumptions for spare parts of equipment
3.2.2 Frame work with basic considerations and analysis with using MUSIC 2D / 3D analysis for downstream of petroleum plants since indenting to ware house stocking
3.2.3 Data analysis for spare parts for centrifugal pump and Compressor based on data from SABIC affiliate.
3.2.4 Concluding with suggestions and recommendations based on above framework for optimized spare parts stocking system based on 2D/ 3D and also cost optimization for spare parts inventory stock.
3.4 Working framework
To achieve the objectives of study, descriptive conceptual basis for spare parts selective categorization as diverse use and to distinguish degree of control for stocking philosophy.
An appropriate framework is developed in following steps
3.4.1 Conceptual standard procedure based on Companywide philosophy for spare parts 3.4.2 Selective inventory control for spare parts items as per tables below
3.4.2.1 SABIC Affiliate data distinguish based on experience and collected ( limited to spare parts for centrifugal and sump pump and a compressors for generalization analysis)
3.4.3 Analysis Tables for 2D/ 3D MUSIC techniques
3.4 Conceptual standard procedure based on Companywide philosophy for spare parts
Assumptions based on normal running of plant with preventive, predictive and shutdown maintenance of plant 3.4.1 Companywide Manufactures Standardization during Project Stage [14]
Prime items: Pumps, Motors, Control valves, Sub assemblies like Mechanical seal, Couplings, PSV’s, parts and valves filters etc. General items like Pressure Gauges, Line valves, Electrical Junction box, Circuit Breakers etc.
148 | P a g e 3.4.2 Stock levels practice using in the industry is based on MRP type [14]
MRP Types: Type V (Stock levels are set up for the spares / other consumables)- F Category Type ND- No Stock only information in the system (low probability failure)- S Category Type PD- No stock only ordered during project stage for commissioning- N category
3.4.2 Vendor managed spare parts for repair and servicing (for items- Mechanical seal, local service) 3.4.3 An adequate interchangeability record to avoid duplication of stocking
3.4.3 Detailed list of spare parts specifying with selective category of spare part item not only for equipment 3.4.4 Prima fascia C& F (site received) lead time consideration two week for local city, 6 weeks for
Outside local city and 4-6 months for import items
3.4.4 Procurement cost consideration based on selective categorization of spare parts as per table below 3.4.5 A level of optimized Risk is considered during MUSIC Technique for low or no stock level
3.5 Selective inventory control for spare parts items as per tables below
TABLE 2: Criticality for Non availability of Equipment - Shell Guide – Source SABIC Affiliate Basis for Criticality (Effective)
Production Loss < 8 hrs Negligible
Production Loss
8 Hrs < PL < 1
day Low
Production Loss
1 day < PL < 5
days Medium
Production Loss
> 5
days High
Figure 2: Sectional view of Centrifugal pump- Indicating parts details [15]
149 | P a g e Figure 3: Sectional view of Mechanical Seal- Indicating parts details [16]
3.6. Classification of Spare parts – Criticality wise
A. Vital (Operation / Safety affected in case of non-availability)- 10 Nos.
B. Essential (Production not affected but may get affected) – 10 Nos.
C. Desirable (No immediate loss of production) -10 Nos.
Note : Conceptual Study it is considered 30 pumps (interchangeability among 10 Nos.in each category) 3.7 Formula for stock levels [ Source from SABIC affiliates]
Ideal Stock = K x (Total lead-time consumption for all Installed quantities).
K is 1.5 for vital operation, 1.5 for essential , 1 for desirable
Total lead-time cons ump. all installed quantities Annual consumption x lead-time x installed quantities.
Without considering MUSIC Techniques
Annual consumption = 1 No for shaft, mechanical seal ,sleeve, Lead time -6 weeks Annual consumption= 2 Nos. for others -2 weeks
IV. ANALYSIS OF IDEAL STOCK LEVEL AND STOCK LEVELS CONSIDERING MUSIC TECHNIQUES
Category Vital. Combining with FSN & ABC Analysis ( F- Fast – a Year, S – Slow- 2 Years, N- >= 3 Years)
Pump- P1 to P10- 10 Nos. – Installed Quantity ( Spares Interchangeable- Same Manufacturer)
150 | P a g e
Table No : 3 Music 3D Technique for Centrifugal pump spare parts and their stock level
consideration
Colno
1 2 3 4 5 6 7 8 9
Item No
Pump spare
Unit cost in USD ( Avg.
prevailing considered)
Ideal Stock level
Amount in USD at ideal stock level
FSN Cat.
of item
ABC Cat.
of item
Stock level.
FSN, ABC &
V cat.
Amount In USD MUSIC stock level
MUSIC Comp.
Keeping in ref.
Col No 5,6 Table No2
1 Shaft 2000 4 8000 N A 2 2000 Comp Nil
2 Impeller 2500 4 10000 N A 2 2500 Comp. nil
3 Impeller key
50 6 300 S C 3 150 Comp
Slow 4 Impeller
Nut
30 6 180 S C 3 90 Comp
Fast 5 Radial
Bearing
100 6 600 F C 6 600 Comp
Fast 6 Thrust
Bearing
100 6 600 F S 3 300 Comp
Slow 7 Oil Seals
( Set)
50 6 300 F C 6 300 Comp
Fast
8 Splash ring 30 6 180 F C 6 180 Comp
Fast 9 Complete
mech. seal
2000 4 8000 N A 2 4000 Comp Nil
10 Mating Ring
800 4 3200 S B 2 1600 Comp
Slow 11 Primary
ring
800 4 3200 S B 2 1600 Comp
Slow 12 Soft seal
set Mating ring
300 6 1800 F C 6 1800 Comp
Fast
13 Soft seal set primary ring
300 6 1800 F C 6 1800 Comp
Fast
14 Total Cost in USD
38160 16920
151 | P a g e 15 Cost Saving with optimized
Stock using 3D Music technique
22240
16 Percentage Saving
56%
Graphical Analysis of Cumulative cost at ideal stock level and Cumulative cost at stock levels considering MUSIC Techniques (Vital Cat. With ABC & FSN Combination)
Figure 4: Graphical analysis cumulative amount ideal condition stock level V/s cumulative MUSIC techniques
V. CONCLUSION
This study, present an approach for cost reduction by using MUSIC Techniques for stock control management of spare parts. According to our study, we can derive the following general conclusions:
5.1 With above study of MUSIC combination of Vital along with FSN and ABC Category it reveals that considering Critically (Cat. A), consumption and annual consumption cost is drastically reduced 5.2 indicating with graphical representation it shows for only set of 10 installed quantities (interchangeable spare parts) the cumulative amount saved in USD is 22240 and percentage wise it is 56%.
5.3 The above data calculations are based on certain assumption with normal running of plant with preventive, predictive and shut down maintenance especially rotary equipment at the same time the break down frequency at a year level could be considered as shut down.
5.4 on the basis of above it can be conclude that for other category in VED ( like E & D) with Combination of FSN and ABC for the spare parts of centrifugal pumps would provide less stock level than the above analysis ( Table no.3) and hence more percentage saving could be done in these category of pumps. This proves our objective Para no 1.1.1 as indicated.
5.5 objective Para no 1.1.2 is being considered at our working frame work and standard manufacturer.
5.6 An approach of Vendor based inventory especially like mechanical seal and other items could be considered for further reduction of inventory in the case of stand by pumps installed at operational plant.
152 | P a g e 5.7 This exercise was also been carried out by research scholar during working with SABIC Affiliate in Saudi Arabia and practically there was no scarcity of spares for 2 years.
5.8 Based on petrochemical plant normal spare parts are 2-4 percent of total project cost of plant, based on the reference data above plant cost for petrochemical unit is 36 Billion USD as indicated in the introduction, based on the same spare parts as per normal stock is 720 million USD and in case of MUSIC Techniques it will reduce to say 50% i.e. 360 million USD.
5.9 ERP packages as SAP R/3 Materials management module is item based codification tool. Hence MUSIC techniques analysis is first to carried out in E- SPIR and then entry to be done in Material master.
5.10 It has been also noticed during working with SABIC affiliates that there are items specially subassemblies like Main lube oil pump spare parts of compressor and other accessories are not recommended by PMT (project management consultant team) as well as main supplier of equipment during project stage hence this exercise of MUSIC with technical review of drawings enable us to cover all items considered as spares.
VI. FUTURE SCOPE
1) Mathematical modelling for rationalized stock levels could be developed
2) Practically, companies of downstream of petroleum could utilise this as a basic frame work and Benchmarking for their worth of optimization of stock levels as well as cost of inventory.
3) Other equipment analysis could be done as future work for mechanical equipment like compressor, Stationary equipment, in line items, electrical and instrument equipment as well.
VII. ACKNOWLEDGEMENT
It is worth acknowledging the sharing of a basis for the above analysis and conceptual data with ideal stock level calculation which is carried out during working as inventory controller with SABIC affiliate.
REFERENCES
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[12] Kuo-En Fu, Wei-Zhen Chen, Lon Chen Hung, Shihsen Peng, An ABC Analysis Model for the Multiple Products Inventory Control-- A Case Study of Company X”
[13] Willem van Jaarsveld and Rommert Dekker, Risk-based stock decisions for projects, Econometric institute, Erasmus University Rotterdam, The Netherlands, December 2008
[14] Sandeep Sharda and Dr. Sanjeev Mishra, Inventory Management- Enterprise Resource Planning, Companywide E- Interchangeably approach for spare parts ; An inventory cost reduction technique specific to downstream of Petroleum plants, IJAERD” Vol3,issue3, March2016.
[15] Fig. 2 Sectional Drawing of Centrifugal pump, “online”,
https://www.google.co.in/search?q=sectional+drawing+for+centrifugal+pumps&espv
[16] Fig.3, Sectional drawing “Mechanical Seal”, online http://www.pumpfundamentals.com
