Preserving Capital Via A Parts Management Agreement   Dan Sherburn - GMS Director, Kendall Electric

It’s no secret that Manufacturers are being asked to produce more with fewer resources. The demand for product variations, speed of delivery, and Six Sigma quality is increasing in the face of shrinking margins per piece produced. Capital project “payback” is now measured in weeks or months, compared to years. The concept of RONA (return on net assets) and OEE (overall equipment effectiveness) are becoming important manufacturing metrics in an effort to get the most out of existing plant assets.

From a maintenance perspective, this presents some pretty serious challenges. In order to maintain a high OEE metric, maintaining high levels of plant or machine “uptime” is critical. It’s understood that having a large amount of inventory of critical spare parts incurs an expense known as carrying costs. Critical spares are required to maintain uptime. So, how can you reduce carry costs and still maintain the amount of spares required to maintain acceptable levels of uptime?

Many manufacturers have taken advantage of a Rockwell Automation program known as a PMA, or Parts Management Agreement. Kendall Electric can supply Rockwell Automation (and some third party) spare parts to be located on a manufacturer’s site. Rockwell retains ownership to the spares, thus eliminating some of the carrying costs. The parts are available to be used by the manufacturer in an emergency. The inventory used is replenished by having the failed part repaired or remanufactured via the Rockwell Automation remanufacturing or repair process.

Rockwell Automation worked with a well known University in an effort to study and document carry costs associated with various manufacturers. Whereas the actual percentages vary, a typical inventory carry cost model is summarized in this chart. The chart is used to demonstrate the savings realized by eliminating and/or reducing certain types of carrying costs. The example assumes the purchase of a $70,000 spare parts inventory and compares the real cost of having that amount of capital tied up in spare parts over the course of fi ve years to the same inventory being procured via Parts Management Agreement. From the chart, it can be seen that certain elements of the carry cost equation are eliminated and others are reduced due to the fact Rockwell maintains ownership of the inventory.

The program offers three and five year agreements, with monthly or quarterly service fees to have the material on-hand available. At the end of the term, the material can be returned, purchased for the residual value of the inventory, or the agreement can be renewed based on the residual value.

For more details regarding the Parts Management Agreements, or a proposal, contact your Kendall Electric representative.