Internet taps into the horizontal supply chain

19 November 1999

The internet promises to revolutionise the management of spare parts inventories, which can amount to several million dollars for a typical plant. Jan Hutchings,, Putney, UK

The real benefits of the internet to business are only just emerging. The sceptics wait patiently for the revolution yet to come. But in the power industry at least, the wait appears to be over with the arrival of internet energy trading, and now, a new spares inventory service.

Pooling information The original idea was first developed in New Zealand. The thinking is based on a simple fact: companies in industries such as power, oil and gas, hold large spares inventories, much of which is surplus to needs and requires on-going servicing and storage at mounting cost.

If such inventories could be reduced by pooling inventory information internally across a multi-site company, and pooling surplus inventory data externally on a regional or global basis, then there big savings can be made. Provided that the components required were available speedily and cost effectively from other contributors to the pool, participating companies could substantially reduce their inventory levels with all the associated cost benefits.

The problem was in deciding what form the service would take: advanced technology coupled with the internet looked like offering an excellent solution.

The service began piloting in the southern hemisphere in 1998. Its success was rapid, despite the fact that, even with the savings on offer, certain companies were slow to appreciate the real benefits.

However, within six months, it was in use by a diverse range of companies throughout Australasia. Transalta Power, the first company to subscribe, has not only renewed its annual licence, but has also recommended that the service be adopted across its 12-site New Zealand operation.

The service has been available throughout Europe since April this year and now several million parts sit on the database. In the UK, CCGTs at Seabank Power, Avonmouth and Fellside Heat and Power, Seascale, are already pooling data.

Selling surplus Where inventories run at high levels the savings can be huge. As an example, a typical combined cycle gas turbine power station has an inventory of about $6 million. If the plant is carrying 15 per cent surplus (typical figures based on research, though many run at higher levels), this equates to some $900 000 tied up in inventory which could be sold immediately without increasing risk to operational capability. Additionally there is storage cost, which is around 20 per cent of the original purchase price per annum, representing an annual cost of around $180 000 – an extremely large negatively performing asset.

The service should be able to reduce a given plant's surplus by between five and ten per cent. However, for the purposes of this illustration, if the plant's surplus is reduced by only one per cent of total inventory per year, and minimum stock levels are reduced by two per cent per year, a company with ten such operating sites could save over £2 million ($3.2 million) per annum. In fact, in the real world, is already seeing examples where savings are potentially much higher and this does not include the cost of downtime.

Horizontal supply chain The concept is unique in that it allows individual end-users of spares to trade their excess inventory between each other – a horizontal supply chain. Nick Phillips,’s business development manager for the power sector explains, “Unlike the conventional method of sourcing spares through the vertical supply chain of spares manufacturers, distributors and other middle organisations, works by releasing the potential of the horizontal supply chain – the surplus spares and equipment held by the users themselves.

“Our subscribers pool information about their surplus spares inventory, helping industrial sellers to release capital otherwise tied up in spares and providing an instant global supply of cost-effective, immediately available inventory. In the case of all areas of the power industry, its use can be expected to dramatically reduce on-site inventory resulting in major cost savings across the board." “We provide software which gathers information on the spare parts inventory from all customer sites, and those of all other companies subscribing, and make it available at a central Infomix database,” says David Stroud, the company’s operations director. “Software installation is easy, a Friday afternoon job. And it is highly compatible, sitting as comfortably alongside Enterprise Resources Planning systems as with the homespun inventory database of a single site.

“Once installed, it takes no more than 90 seconds to find the part needed,” Stroud continues. “You can choose to search just your company's own sites or all the sites on the database, which is a lot of potential sources not previously accessible.” Beyond that it is a case of negotiation between the supplying company and the purchasing one. Although often such companies are in competition, it has not proved to be a problem. Companies are not competing at a spare parts level and engineers have been slipping each other spare parts through the fence for years. sparesFinder is simply extending their circle of friends, building on existing practices, forming clubs.

The charging system adopted by sparesFinder is also distinctive: an annual flat fee.

At the beginning of the era of eCommerce, is providing a genuine reason for power plants around the world to embrace the internet.

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