Decision Making and Tradeoffs in the Management of Spare Parts Inventory at Utilities

During the past decade, the United States electric utility industry has migrated from a regulated to a deregulated business environment. As a result, utilities in the electric power sector face a much more urgent imperative to emphasize cost efficiencies as compared to the days of regulation. One major opportunity for cost savings is through reductions in spare parts inventory. Most utilities are accustomed to carrying large volumes of expensive, relatively slow-moving units because of a high degree of risk-averseness. In this paper we discuss the tradeoffs associated with keeping large amounts of inventory versus the potential revenue losses if a plant were to go off-line. We also discuss the resulting considerations with respect to inventory along with forecasting techniques and data needed to aid plant managers in making stocking decisions.