A Systematic Approach to Internal Spare Parts Management by Paul

Internal spare parts management is a universal issue faced by all manufacturers, and involves decision-making and planning across a highly complex and heterogeneous group of thousands of items. Spare parts exhibit intermittent demand and a variety of prices, lead times, and potential downtime costs that pose challenges for planning and control. Managers can facilitate spare parts decision-making through the utilization of classification methods to prioritize critical parts and forecasting tools to better establish inventory policies. This thesis explores a classification method to evaluate the criticality of spare parts using the Analytic Hierarchy Process and applies bootstrapping forecast techniques to better inform safety stock levels. A joint classification and forecasting model is developed and validated for use by supply chain and maintenance teams in the organization. Through improved safety stock settings, an inventory savings of up to 39% is identified while maintaining or increasing service levels for critical spare parts. For most manufacturing companies, the approaches and findings discussed in this thesis are applicable and can be used to aid efforts in establishing a systematic approach to internal spare parts. Thesis Supervisor: Juan Pablo Vielma Title: Richard S. Leghorn (1939) Career Development Assistant Professor, MIT Sloan School of Management Thesis Supervisor: Bruce Cameron Title: Lecturer, Engineering Systems Division