What are taxonomies in spares and asset management and why it is imperative for companies to institutionalize its framework.

Ok, before we go into Taxonomies, let’s define Spares, shall we? Spares are divided into direct and indirect spares.

Direct spares are parts that go into the finished product and are stocked to support its lifecycle. In a car manufacturing setting as an example, windscreen wipers are direct spares as they’re fitted into cars, where cars are the finished product.

While indirect spares, also known as MROs (Maintenance, Repair, and Operations items) consist of components and consumables that contribute to the manufacturing of the finished product. Some examples are lubricants that oil the welding machine to weld cars, and nuts and bolts that hold the machinery together. They don’t go into the finished product.

Now, what are assets? Assets refer to the physical items belonging to a company like equipment, buildings, vehicles, and machinery where the production of finished goods mostly takes place.

Here’s another interesting fact. A report by Wasp Barcode Technologies stated that 43% of small businesses fail to track their assets and inventory. 43%, that’s a lot. In the absence of a tracking system, people resort to free-text purchasing that bypasses catalogues and standard procurement procedures.

So, what’s the big deal if we fail to track assets and spares? Materials of the same kind accumulate in warehouses, at risk of becoming obsolete or forgotten. This leads to more grave consequences like over-inflated working capital getting tied up in inventory. Not a fun situation to be in especially if you’re looking to unlock some extra funds!

That’s why leading organisations stick with the practice of identifying and classifying these items. This is achieved through taxonomies.

How to create a taxonomy?

Taxonomy refers to the classification and identification of things. Sounds simple, but it isn’t when we apply to spares and assets. In the world of assets and spares management, taxonomy serves as a structured dictionary with individual item templates consisting of nouns, modifiers, and their characteristics.

To illustrate an example, let’s take a spare part called ball bearing. As ‘bearing’ is a material class on its own and comes in different types, it’s not enough to just record ‘ball bearing’ in the description field and expect people to easily find it. Here, ‘ball’ describes the type of the ‘bearing’. So, ‘bearing’ is designated as the noun and ‘ball’ is designated as the modifier. Then, you can populate other distinguishing attributes like inner diameter, outer diameter, etc. You’ll now be able to differentiate it from other types of bearings, e.g., ‘roller bearing’ and ‘magnetic bearing’, or even within ball bearings of different characteristics.

This way, identification of parts becomes easier in supply chain and procurement scenarios. Purchasing becomes pain-free when attributes like manufacturer’s part number are included in the taxonomy. This capability becomes a must-have (rather than a nice-to-have), even more so in unplanned breakdown scenarios where critical parts are needed fast.

While you can define a taxonomy based on your unique requirements, there are industry standards you can refer to such as ISO14224 to get you started quickly and model your operations around industry best practices. How good is that?

But hold on, what is ISO14224? ISO14224 provides a standardised framework for the collection of reliability and maintenance (RM) data for equipment in facilities within the broad range of petroleum industries. The main structure has nine levels, categorised based on the usage, location, and subdivision of equipment. Level 1 (uppermost) represents the industry whilst level 9 (bottom-most) depicts the piece of the material itself.

This logical grouping makes it suitable for other asset-intensive industries to adopt this standard too. You can use it as your base taxonomy and add the attribute fields relevant to your business.

How to start classifying?

Setting up the taxonomy is only the first step. The next step is data population, which involves capturing spares and assets’ details and categorising them into the fields defined within your taxonomy.

You can retrieve the data through the following mediums:

  • Plant and system drawings and layouts
  • Manufacturers’ manuals
  • Technical specification sheets
  • Piping and instrumentation diagrams (P&ID)
  • Photos and videos of equipment/machinery
  • Plant/asset walk down in the field

Through diligent updates, you’ll have a comprehensive data dictionary—a library of sorts for your spares and assets. This would be the starting point toward better management of your spares and assets.

What are the benefits of taxonomising spares and assets data?

By having a taxonomy that’s enriched with identification and attribute fields, you’ll have more visibility and control of your materials. Details about their location (in plants and in warehouses), quantities, criticality, etc. are at your fingertips.

You can optimise maintenance and reliability strategies

With better tracking of spares and assets, there are fewer blind spots, giving you a firmer grasp on maintenance planning and scheduling. You can minimise unplanned breakdowns with more coordinated planned work that fully utilises trustworthy datasets.

Using ISO14224 standard, you can also capture failure and maintenance data. This feeds into your maintenance strategies where you can use methodologies like reliability-centred maintenance (RCM), failure mode, effects and criticality analysis (FMECA), and risk-based inspection (RBI).

You can reduce your holding and inventory costs

Once you’re able to categorise your materials based on their criticality, you can rationalise those that should be stocked up in warehouses vs. those that shouldn’t.

For example, you can strategise to have large quantities of high-criticality spares in inventory. As for the low-criticality ones, you can have them stocked in low quantities or procured directly when the need arises. This way, you can reduce the costs of storage, upkeep, and labour of these unnecessary parts, hence optimising cost savings.

You will have access to insightful purchasing spend analysis

With systematically-categorised materials, you’re well-equipped to perform purchasing spend analysis that produces valuable insight to drive cost savings and procurement efficiency.

For example, you can identify material categories that have high costs and renegotiate payment terms with the corresponding suppliers to get discounts. Strategic sourcing at its best!

You can have improved collaboration

By having a standardised taxonomy, your people can ‘speak’ a common language when it comes to these spares and assets. Information can be shared seamlessly between Engineering & Maintenance, Inventory, and Procurement, translated into clear action plans. This improves cross-departmental collaboration, eliminates confusion, and avoids communication breakdowns that can be costly to your operations.

Adopting industry standards also facilitates collaboration with external parties like suppliers and manufacturers.

MDO and ConnektHub

Defining your own taxonomy from scratch may be impractical as it’d be time- and resource-consuming. There’s also the chance that external parties like your suppliers would not understand the ‘lingo’ in your taxonomy, let alone adopt it, thus hindering any effective collaboration or win-win contract negotiation.

Recognising this as a barrier to having well-oiled spares and assets management, we’ve introduced ConnektHub as part of our MDO solution suite. It’s our flagship content library that holds industry standards, taxonomies, and business templates.

ISO14224 is one of the taxonomies that you can get from ConnektHub. It provides the foundation for you to build your catalogue of assets and spares and nurture a collaborative environment with third parties. MDO builds on this taxonomy by providing the cataloguing functionalities for additional attributes and data governance.

Through an enriched, industry-driven taxonomy, you can rapidly launch your spares and assets management initiatives and reap the benefits.

Written by: Shigim Yusof