Slow moving parts; stock control

I only taught inventory management (stock control) for a couple of years, and then the university appointed a specialist who taught most of the material.  From time to time after that I was asked to contribute to lectures and co-wrote a few academic papers about inventories in particular circumstances. 

One story which sticks in my mind came from one of the text books and it cited the experience of an American iron and steel maker from the 1960s.  Maybe a reader can identify the case?  There was one essential component for the blast furnace which cost about 250 dollars.  Based on someone's calculation of the frequency of needing this item, the company had determined that it was a slow-moving item, and the appropriate model for replenishment was to hold two spares, and as soon as one was used, to order another.  There was a lead time of a few weeks, between placing the order and receiving the item.  Such a model is common for slow-moving items; the key variable is the number to have in-stock-plus-on-order.  The model depends on the cost of storage, the cost of a failure if no items are in stock, the lead time for delivery and the lifetime distribution for the item.  If calculated properly, there will be a minute chance of not having a spare when one is needed.

One day the inevitable happened.  The component failed, there were two items on-order and none in-stock.  And the consequence was: the furnace had to be closed down, and then fired up again when the component had been replaced.  Total cost; about half a million dollars.

I used this example to emphasise the importance of getting correct values for all the costs involved.  In this case, I suspected that the someone seriously underestimated the cost of having no items in stock when there was a need, or, miscalculated the lifetime distribution for the component.

Why did I remember this story?  Today, our local news includes an item about the failure of a large windfarm in Devon.  According to the story, one component has failed.  I wonder who miscalculated the stock control policy for spares for this component?


  1. Incorrect parameter estimates are the natural suspects, but sometimes it really is just very bad luck -- and I think it's often hard to say which its the culprit.


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