Pareto Analysis for Control Systems

In 2017, a customer asked us: “Could you please recommend what parts should we keep in stock to ensure that, with at least a 99% probability, we will have that part on site when needed?”

We all knew about the “Level I, II and III Spares” that the OEM recommends, but this customer wanted a little more “scientific” approach to justify the investment in spares.

Just from being in business since 2001, we had a very good idea about which were the most sold or repaired components. Fortunately, we also collected all these thousands of datapoints: we have records for every component ever sold or repaired by GTC.

Then, we considered that customers buy components in four different ways:

  1. Emergency/Forced Outage
  2. Inventory Replenishment
  3. Inventory Expansion through budget allocation
  4. Inventory Expansion through unused budget (use it or lose it!)

In every case the purchase of parts is rational, i.e. limited to a minimum and based on site experience.

The Repair is, in most cases, a mutually exclusive alternative to the Purchase.

Also, our population sample spans 17+ years, hundreds of panels and thousands of components.

What does this all mean?

In very simple terms, that: our data represents a good industry average for the control systems under study.

Therefore, it was just a matter of some basic spreadsheet skills to calculate the “frequency of failure” for each component, and the “accumulated frequency of failure”.

It was such a great feeling to see that the histogram’s distribution of the frequencies followed an almost perfect Poisson (exponential) distribution! The accumulated frequencies (the ochre curve) represents the Pareto Analysis (a.k.a. 80/20 rule).

We were so proud of the results. But… Were they any good? How would they help our customer?

We sent them the graph for their panels, and they said: “Fantastic! Now what?”

Eventually we, GTC and our customer, realized that it was a much easier proposition for them to send us their inventory lists and we, with some spreadsheet juggling, matched their inventory to our Pareto Analysis. We identified their inventory gaps within the first 25 components, which represented about 85% of the accumulated failure rates.

We found that they missed only three components.

They confirmed that those three components were used in one of their panels to fix a problem.

Complete Field Test success! And our analysis fitted perfectly in the “Inventory Replenishment” category.

This first exercise was a great step forward in the validation of our Pareto Analysis approach.

Since then, we have applied our Pareto Analysis to identify gaps in other customer inventories, with the same success.

GTC recommends to stock the first 20 to 30 components – depending on the panel model – to ensure that, in most cases, the part will be available on-site when needed. And, for locations with overnight delivery from our Headquarters in Hawthorne-NY, we recommend to stock just one of each independently of the number of units on site.

For multi-unit sites in remote locations, we can provide support to assess a safe number of components to stock.

So, this is the “science” behind the “Recommended Spare Parts List” for control systems.

A yearly update ensures that we capture any significant variation in the distribution.

At GTC we like to help our customers optimize their business, investing in the “right type and amount” of spares to mitigate the risk of an annoying, and costly, forced outage.

Call your GTC Sales Representative for support to define a safe spare parts inventory.

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