In capital projects generally, and in the oil and gas upstream sector in particular, the transition from engineering design to operational readiness hinges significantly on the accurate and timely provision of Spare Parts Interchange Lists (SPILs), also known as Spares Part as Spares Parts Lists and Interchangeability Records (SPIRs) or Recommended Spare Parts Lists (RSPLs). These critical documents, furnished by Equipment Manufacturers (OEMs) via Engineering Procurement Contractors (EPCs), lay the groundwork for operational efficiency and risk mitigation.

Late delivery and inconsistencies of SPIR documents

A prevalent issue facing plant operators is the delayed release of SPIR documents by EPCs, often at the project’s conclusion or omitted entirely despite contractual penalties. This delay hampers the operator’s ability to procure long-lead items promptly and accurately forecast warehouse requirements for greenfield projects. The format inconsistency of SPIRs, stemming from their evolution from paper forms to spreadsheets, further complicates data extraction due to non-standardization and frequent edits.

Moving beyond spreadsheets

A study of numerous SPIR documents illustrates the inherent flaws in traditional SPIR documentation such as: differing formats leading to difficulties in the extractability of the data, vague product descriptions, general poor data quality in most data fields, and the absence of equipment criticality details and maintenance capabilities. Such deficiencies underscore the urgent need for a paradigm shift towards standardized, digital data exchange protocols that ensure data integrity and accessibility.

In one example, from a single 62-line SPIR document, the term O-ring (as per ISO 5598:2019) is described incorrectly in four different ways (“O” Ring, ORing, O Ring, and O-Ring). The material and the shore hardness were missing from the details, and although the dimensions were included it is impossible to safely order this common consumable item from any other supplier.

The imperative for high-quality data

To address the data challenges inherent in spreadsheets based SPIR documents, organizations should embrace international data exchange standards, such as the ISO 8000 series. This approach advocates for supplier-led data specification in computable formats, grounded in the provenance of data to eliminate ambiguities and streamline data utilization. A contractual clause mandating ISO 8000-115 compliant identifiers represents a tangible step towards achieving guaranteed data quality, cost reduction, and enhanced operational efficiency.

A call for digital transformation

The persistent reliance on spreadsheets for managing SPIR documentation in an era when digital data standards are available is perplexing. The transition to a digital data exchange service, underpinned by international standards like the ISO 8000 series, offers a promising solution to the entrenched issues of data quality and efficiency in spare parts management. This digital transformation, initiated through strategic contractual requirements, paves the way for operational excellence in all capital projects, whether in asset intensive industries, or regular manufacturing facilities.

At KOIOS Master Data, our in-depth understanding of the SPIR (Spare Parts Interchangeability Record) process challenges comes from extensive MRO (Maintenance, Repair, and Operations) consultancy work. This firsthand experience highlights the detrimental impact of poor-quality SPIR data on cost, time, resources, and the environment in the oil and gas sector. In an era of digital transformation and Industry 4.0, the persistence of inadequate data quality in SPIRs is perplexing and counterproductive.

The birth of K:spir: a solution to SPIR challenges

Faced with these challenges and the absence of an effective digital SPIR solution, KOIOS Master Data developed K:spir. This software, designed using the data architecture established in the ISO 8000 data quality standard, ensures the integrity and usability of machine-readable data throughout the operational chain, leading to improved decision-making, cost efficiency, and resource optimization.

The importance of Master Data Management in SPIRs

The significance of master data management cannot be overstated, especially in an age characterized by an explosion of data. Poor data management practices can place businesses at a competitive disadvantage, as evidenced by findings from Experian and the Aberdeen Group. These studies highlight the widespread negative impacts, and hidden costs of poor data quality, including the mistrust in data that hampers strategic decision-making.

Dissecting the SPIR process

The traditional SPIR process is fraught with issues:

Data Quality: Often derived from paper forms and subject to multiple transcriptions, SPIR data becomes inaccurate and oversimplified. K:spir addresses this by locking in ISO 8000 standard data quality from the outset.

Data Accessibility: SPIRs, typically in spreadsheet or PDF formats, are cumbersome to analyze and integrate. K:spir offers instant reporting and interoperability with maintenance systems, saving time and reducing data handling costs.

Timeliness: SPIRs are frequently delivered too late to influence critical decisions. K:spir introduces transparency early in the project lifecycle, enabling informed decisions on spares procurement and warehouse sizing.

The future of SPIRs and MDM

While the KOIOS software suite, including K:spir, represents a significant advancement in MDM and SPIR processes, broader issues of data ownership and management persist. The shift towards a more integrated approach to data management, with business units taking a more active role alongside IT departments, is essential for harnessing the full potential of data to drive strategic decision-making.

A call for industry-wide change

KOIOS Master Data is at the forefront of advocating for improved data quality in the oil and gas industry. By embracing digital transformation and demanding higher data standards, stakeholders across the sector can achieve greater efficiency, cost savings, and operational excellence.

The Hidden Costs of MRO Management

Most production environments, particularly those in asset-intensive industries, rely heavily on Maintenance, Repair, and Operations (MRO) resources to keep crucial machinery operational, safe, and efficient. Despite this, MRO inventory seldom receives the executive attention it warrants, often sidelined as ‘indirect’ material and overlooked in strategic planning.

The Financial Implications

For businesses operating on thin margins, such as manufacturing or regulated asset-intensive companies with a 5% profit on sales, the financial stakes are high. A mismanaged $50,000 inventory translates to a lost opportunity equivalent to $1,000,000 in sales. The reality that MRO inventory rarely sells for more than pennies on the dollar further compounds the issue.

Aligning Supply with Demand

Successful organizations understand the importance of syncing supply chain operations with maintenance and production demands. Siloed planning, however, remains a challenge, leading to reactive supply chains unable to accommodate breakdowns without impacting production.

The Importance of Quality Data

Poor data quality within the MRO supply chain can lead to incorrect spare part supplies or delays, directly affecting production efficiency. The cost implications of poor data management escalate over time, adhering to the “1:10:100” rule, which posits that the cost of correcting data errors increases exponentially the longer they go unaddressed.

Incorporating Quality Management Systems

Quality Management Systems (QMS), such as those outlined in ISO standards (e.g., ISO 9001, ISO 14001 and ISO 50001), play a crucial role in aligning maintenance, reliability, and supply chain functions. These systems emphasize top management’s commitment to quality, which is essential for fostering a culture of continuous improvement.

Toyota Principle #5 and ISO Standards

Toyota’s principle of addressing problems immediately to ensure quality aligns with the ethos of ISO Management System Standards. These standards stress the importance of leadership in establishing a culture of quality and continuous improvement.

To accurately assess the true expense of inventory management, it’s essential to consider the Inventory Carrying Cost (ICC) or Holding Cost Factor (HCF). The HCF encapsulates the financial commitment involved in maintaining and storing inventory before its actual need arises. This factor is quantified as a percentage of the total inventory value, derived by summing several costs: capital cost, handling, insurance, labor, obsolescence, shrinkage, and storage space cost.

Industry observations reveal that annual inventory holding costs generally fall within 15-40%, with a common range of 20-25% of the inventory’s value. For instance, an organization with a 22% HCF and a $10,000,000 inventory value incurs an annual expense of $2,200,000 to manage its inventory.

Real savings can be made

The introduction of a robust process for identifying maintenance-required spares, as opposed to those suggested by Original Equipment Manufacturers, can significantly enhance an organization’s cash position. Assuming a 25% reduction in inventory purchases leads to a $550,000 decrease in holding costs, alongside a $2,500,000 direct savings from reduced purchases.

For businesses like manufacturing or asset-intensive companies operating at a 5% profit margin, a $50,000 operational savings equates to the revenue generated from $1 million in sales.

Effective materials management hinges on two essential and related components. First, understanding and recording your equipment failure responses at the equipment class level—or ideally, at the asset or functional or location tag level, and second, establishing and maintaining an active Bill of Materials function.

These components are inseparable. The Maintenance Bill of Materials (M-BoM) is shaped by the demand required to promptly restore equipment following a failure. The supply side, influenced by supply chain responses, is documented within the M-BoM, which depending on the cost characteristics of the equipment may include:

 — A complete unit for replacement rather than repair (Rotable or Expendable equipment types);

— Internal parts for item repairs (Repairable equipment type);

— Peripheral parts, such as belts or couplings, for specific failure modes;

— Consumables like fasteners or shims, necessary for replacement post-repair;

— Special tooling.

Calculating your spares holding: A guide

Timely access to spare parts is vital for preventing significant production losses and avoiding unnecessary costs. Conversely, excessive or irrelevant inventory can tie up capital, occupy space, and inflate operating costs.

Determining the appropriate spares holding requires alignment with your facility’s maintenance strategy, incorporating principles like:

— On-site spare parts storage should be limited to field-replaceable items for critical equipment.

— Spare parts for non-critical equipment are typically not owned by the company and are ordered as needed.

— High-usage consumables may be managed through consignment stock or daily delivery from suppliers.

— Complete spare units should be stocked when cost-effective or necessary to minimize production downtime.

Optimizing equipment repair strategies

An effective repair strategy aligns production, maintenance, warehousing, supply chain, and finance objectives, ensuring materials stored are directly relevant to maintenance practices. This approach aims to:

— Align objectives across operations, maintenance, and logistics.

— Identify optimal repair and inventory strategies.

— Maximize working capital efficiency.

— Reduce repair times through logistical efficiency and available spares.

Assessing spare parts demand

Overstocking often results from initial stocking based on equipment supplier recommendations without considering site-specific factors. A tailored approach, taking into account maintenance capability, equipment criticality, and service downtime, is crucial for efficient spare parts management.

Aligning spare parts supply with demand

The lack of coordination between maintenance and stores functions can result in unavailability of necessary spare parts and accumulation of unused inventory. Adopting a “just in time” material philosophy, as opposed to “just in case,” can improve cash flow and ensure materials are available when required.

This integrated strategy aligns asset and material management objectives, ensuring materials are relevant and available to meet maintenance demands, thus ensuring the production assets perform to their maximum capacity.

Corporate MRO (Maintenance, Repair, and Overhaul) inventory strategies range from “just-in-case” to “just-in-time,” each carrying risks at their extremes. Finding a balance that aligns with an individual facility’s unique requirements is crucial to reduce costs associated with holding unnecessary spare parts while maximizing equipment availability.

The “just-in-case” culture

The “just-in-case” approach often overlooks the costs of holding spares that may never be used. This strategy, commonly adopted by teams focusing solely on the supply side of spares demand, leads to purchasing decisions based on spot market prices without forming partnerships with suppliers. Consequently, maintenance operates on a reactive basis, resulting in inventory levels significantly above the industry average for their sector.

The “just-in-case” culture

In contrast, “just-in-time” advocates understand the need to optimize spares demand at the equipment level, recognizing the opportunity to better utilize cash for enhancing equipment efficiency and performance. These organizations foster long-term supply arrangements with key suppliers who, in partnership, maintain a backup stock of critical, long lead-time items. This approach typically results in inventory levels below the sector’s industry average.

Understanding the cost of holding inventory

To ascertain inventory holding costs, one must consider the Inventory Carrying Cost (ICC) or Holding Cost Factor (HCF), representing the cash investment tied to owning and storing inventory before its necessity arises.

The HCF, a percentage of total inventory value, encompasses capital costs, handling, insurance, labor, obsolescence, shrinkage, and storage space costs.

Industry experience suggests annual holding costs range from 15-40%, with a typical range of 20-25%. For instance, an organization with a 22% HCF and $10 million in inventory incurs $2.2 million in annual inventory management costs.