Importance of Determining the Level of Protection (Safety Stock) (Essay Sample)
Instructions: Discuss the importance of considering the level of protection desired (safety factor) when determining spare part quantities.
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Logistics knowledge, over the past few decades, has developed and its dissemination has led to the increased awareness that organizations need to optimize their processes, particularly those associated with the accumulation and movement of goods within the supply chain (Mikalsen, 2015). Companies tend to reduce the level of inventories due to financial concerns; however, since at the same time the companies aim for continuity in their production process, they are obligated to maintain a safe inventory level of spare part quantities. This provides a conundrum for many enterprises considering that spare part quantities have different characteristics compared to other regular company inventories (Mikalsen, 2015).
Rego& Mesquita (2011) conducted a literature review for the management of spare parts and discovered some crucial factors. Rego& Mesquita (2011) determined that the customer's negative perception is worsened with cases of delayed repairs due to lack of spare parts. This is because most clients place a lot of expectations on the quality of associated products. Additionally, some items, which have a greater propensity to wear out, are in high demand, albeit a majority of them are intermittent in nature. Spare parts are also highly likely to be obsolete due to their complexity and a reduction in their lifecycles (Rego& Mesquita, 2011).
The importance of maintaining a safety stock level for spare parts cannot be overemphasized. The production activity and its continuity are dependent on the protection level of spare part quantities. Consequently, the fundamental challenge for spare parts stock management is the determination of a particular stock level and structure that will ensure smooth operations. On that note, this essay will highlight the importance of maintaining a safety stock level for spare part quantities.
Importance of Determining the Level of Protection (Safety Stock)
Appreciating and understanding the critical role that safety stock plays in the management of spare part quantities is the first step to improved continuous plant productivity. Balancing spare part inventory also ensures the reduced instances of overstocking or stock outs. Kennedy, Wayne Patterson & Fredendall (2002) posit that spare part inventories policies cannot be similar to the policies that govern work in progress and other inventory types. Spare parts are intermediate goods and are not sold to the end consumer. Consequently, applying environmental accounting procedures can inventory managers determine items that need to be stored for production continuity (Grondys, 2015). Spare part inventories have the likelihood of exceeding their lifecycles; nonetheless, the storage of these inventories is essential so as to prevent the occurrence of downtimes of production equipment. Buffer stock or safety stock provides security against the danger of equipment damage or failure (Grondys, 2015).
The lumpy or intermittent demand patterns of spare part inventories are characterized by periods of diminished demand and sudden spikes in demand. Moreover, the stock out costs for spare parts are usually disproportionately higher than the value of the inventory—hence it is comparatively beneficial to have such spare part items in stock since it reduces the costs associated with downtime due to lack of spare par tinventories (Mikalsen, 2015). These challenges affect all companies, but most of them lack the expertise or knowledge to
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