Replacement Parts and Components Survey: Partnerships in Parts Procurement

August 1, 2010
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While maintenance and repair budgets must contend with capital constraints, food and beverage professionals are pressing ahead with enhanced spare parts management strategies.



Food and beverage manufacturers are insulated from, but not immune to, economic disruption, and adjustments to the financial freefall of 2008 extended to the tool crib and parts shed, Food Engineering’s eighth annual Replacement Parts and Components Trend Study shows.

While three-fifths of professionals surveyed say no changes have been made in replacement parts purchasing in the last year, another one-third indicate their parts inventories are being reduced. Capital constraints do not necessarily mean fewer parts and components, however: One in 14 (7%) say inventories are increasing in response to economic conditions.

Inventory costs and the availability of capital are frequently mentioned as the reasons for reducing inventory, but other factors are involved. Efficiency methodologies such as lean manufacturing and 5S are cited as drivers in parts reductions, with comments such as “trying to improve our kanban system” and “trying to achieve just-in-time for parts” indicative of the motives at play. Some manufacturers simply are culling obsolete parts in their inventories, while others are outsourcing carrying costs. “Putting more responsibility on suppliers” is one reader’s explanation.

Improving OEE and production uptime is worth more than the carrying cost of replacement parts, many organizations have concluded, and boosting inventories is a critical hedge against downtime. “Increased utilization of manufacturing lines has put a premium on keeping all lines in service,” a respondent writes. Others simply take a hard look at the components on hand and don’t like what they see. “Important replacement parts were not kept in stock,” one acknowledges, resulting in an inventory expansion.

When last year’s parts survey was conducted in early 2009, the financial crisis was in its early phase, and almost two-thirds of respondents indicated economic conditions were not affecting purchases. Twelve months later, awareness of job losses, declining personal assets and pay freezes was more acute, and this year only half of Food Engineering readers indicate parts practices haven’t changed. One in 12 indicates a shift to volume purchases to gain discounts, double the rate in 2009, while 28% say they are more likely to purchase less expensive replacement components, up from 19%. “While we were always cost conscious,” a reader writes, “now it’s even more critical to the decision. Higher-cost parts need to prove more fundamentally that they’ll save cost over the part’s life.” Other approaches include just-in-time replenishment and eBay.

As personal comfort with online purchasing has increased, use of general-purpose Web sites also has gone up, including for business ordering. One in six (17%) industry professionals say they purchased replacement parts and components on eBay or another general site in the last six months. Only a quarter of respondents are not inclined to do any online buying, down from half in 2006.

The popularity of manufacturers’ Web sites is growing, with 55% of respondents placing an order in the previous six months, double the 2006 rate. Distributors’ sites match OEMs in popularity. The dead heat is notable compared to 2003, when buyers were twice as likely to have purchased parts from a manufacturer’s site as a distributor’s. In seven years, recent purchases doubled from manufacturer sites and quadrupled from distributor sites.

Collaborative troubleshooting

Online ordering is convenient, but the World Wide Web offers performance-improvement possibilities for manufacturers, as well. Remote diagnostics and machine-condition monitoring by equipment suppliers is an example, and one in five readers report their facilities are taking advantage of supplier-supported remote diagnostics to flag approaching failure.

In virtually all cases-97%-data gathered through remote diagnostics does not simply trigger a component shipment. The information is shared with the maintenance team, alerting those professionals to premature failures that could bring production to a screeching halt.

In fact, manufacturers are increasing their use of both automation and supplier relationships to improve parts programs on several fronts. Paperless purchase orders are becoming the rule, with 43% saying system-generated P/Os are used to order parts at their firms, up 15 points in two years. Hard-copy P/Os, on the other hand, continue to decline. Direct data links to parts suppliers and distributors, though still a single-digit phenomenon, are twice as common today as in 2007.

Similarly, maintenance strategies are growing more sophisticated. Heat measurement, vibration analysis and other predictive tools, once deemed too expensive outside the realm of power plants and other heavy-equipment environments, are used at 11% of respondents’ facilities, triple the frequency of a few years ago. Concurrently, time-based replacement schedules and regularly scheduled visual inspections to determine wear are declining, though visual inspections still are common at 43% of food and beverage plants. In 2005, 57% relied on visual inspections.

How hard a component works, rather than how long it has been available for service, is the metric of choice for determining replacement at a small but growing number of plants.

Use of specific inventory-improvement tactics has remained remarkably consistent over the last six years. Almost two-thirds (63%) of plants use inventory dollar value, 56% rely on turns, and a quarter (24%) outsource the responsibility to a local supply house. Asset management software such as Datastream’s MP2 is mentioned by some, along with demand and usage and “use one and replace one.” “Process criticality plays an important role,” one respondent writes, hinting at the multivariable approach taken by many. Stocking a component depends on its importance, shrink likelihood and obsolescence potential.

Placing parts in kits for routine maintenance is a maintenance/repair/operations (MRO) practice at half the plants, significantly higher than the frequency in recent years. Vendor-managed inventories are almost as popular, with 47% using this MRO practice. On-site engineering and machining of parts continues to decline, while central warehousing of common parts for multi-plant manufacturers has shown little change in recent years.

Only one in five indicates consignment is an MRO inventory practice, but that may understate the practice. Asked what consignment strategies their facilities are using to lower capital costs, more than a third (36%) say they forged a relationship with a local distributor, with spares stored on the distributor’s site. One in eight has consignment relationships with multiple distributors and OEMs and cooperative relationships with a local distributor, with parts stored at the plant. Two in five indicate they have no consignment arrangements.

Quality vs. cost

Belt-tightening puts added pressure on forecasting the return on investment from more expensive, higher-quality parts and components. The survey presented three options plus an opportunity for an open-ended response. The feedback is indicative of the trade-offs inherent in these decisions.

Four-fifths of respondents are evenly split between two approaches: Either their organizations have quantified the maintenance costs of machine parts and are able to calculate the ROI on higher-quality parts, or they have concluded most parts are commodities, making price the determinant when specifying replacements. Another 12% agree with the statement that a shortage of maintenance manpower necessitated a best-in-class approach to components, to extend mean time to failure.

In reality, all of those approaches are in play, with the specific part determining which is used. “We use commodities except when ROI or common sense dictates otherwise,” one professional writes. “It’s a balance between (calculated ROI and labor-shortage considerations),” another writes, “depending on the cost of the part and the cost of downtime on the specific equipment or process.”

“We try to manage the lifecycle cost,” adds one reader. “We test cheaper alternatives occasionally in a controlled manner.” Recommendations of the equipment fabricator, how remote the plant location is, parts availability and price, and whether a part’s failure could result in a production shutdown of more than eight hours are among the other considerations cited.

Less-expensive, non-OEM parts are not inferior by nature, but sizable pluralities report issues with them. Asked, “Have you experienced problems with cheap replacement parts or knockoff parts?” more than a third (37%) indicate premature machine failures occurred, consistent with prior years’ responses. A third agrees with the statement, “Cheaper parts do not work as well as higher-priced parts,” and 7% suspect they were the recipients of counterfeit parts. But almost one in five concurs with the statement, “Cheaper parts work just as well as higher-priced parts.”

“Cheaper parts are the most expensive in the long run,” a reader writes, and the 29% of respondents who indicate they don’t use knockoffs undoubtedly would agree. On the other hand, most who provided written comments express a nuanced view. “It depends on the parts,” says one. “Sometimes the cheaper parts work just as well. We base it on experience.” Others concur. “In some circumstances, cost is not a good indication of quality or life expectancy,” a respondent writes. Adds another: “Sometimes the cheaper parts are all that are needed.”

Confidence in the parts supplier carries some weight, with two-thirds indicating supplier reputation and a prior relationship are very or extremely important. Electronic ordering and tracking carry considerable weight with a third of respondents, leapfrogging breadth of line in importance. Product quality is rated as extremely or very important by more readers than any other variable, overtaking product availability for the top spot.

Maintenance personnel are primarily involved in replacement-parts decisions in slightly more than half the organizations represented in the survey, followed by plant operations (14%), engineering (12%) and general administration/executive management (10%).

Who provided the feedback?

Findings in the annual replacement parts study are based on feedback from Food Engineering readers with purchase influence on plant equipment and rolling stock. Input to this year’s study was based on both mailed and Web-based surveys conducted in March.

General administrators and executives constituted the largest job segment at 22%. For the first time in the survey’s eight years, engineers did not represent the largest plurality, slipping to third, behind plant operations, at one in five. Maintenance professionals also declined to a low of 16%. QA, R&D and purchasing rounded out the sample.

A balance in production categories was reflected, with one in six manufacturing meat, poultry or seafood; one in seven producing beverages; and one in nine processing frozen meals, baked goods or snacks and dairy products and novelties. Additional food categories also were represented. Average annual expenditures on parts and components were $1.7 million, representing a total of $277 million for all respondents.

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