Converting availability goals for spare parts inventory

In this article we show how to convert the Probability of Availability to Stock-Out-Risk or Mean-Time-Between-Stock-Out for Spare Parts inventory.

Problem

1. Spares Calculator forecasts [Stock-Out-Risk] and [Mean Time Between Stock-Out]
2. Many organisations prefer to specify a [Probability of Availability]
3. Analysts need to understand the relationship between these parameters

Background

Many organisations prefer to specify a [Probability of Availability] for their Spare Parts rather than [Stock-Out-Risk] or [Mean Time Between Stock-Out]. For example, a specification might state that the all parts shall have a [Probability of Availability] of 0.95 (or 95%) measured in a 30-day period. So how can you convert between the three values?

Proof 1

[Stock-Out-Risk] and [Probability of Availability]

We now prove the relationship between [Stock-Out-Risk] and [Probability of Availability]

We start with the fundamental statistical axiom that the probability of a certainty is 1.

[Probability of a Certainty] = 1 (eq1)

We also know that it is certain that a part will either be Availability or Unavailability.

Therefore:

[Probability of Availability] + [Probability of Unavailability] = 1 (eq2)

By transposing we get:

[Probability of Availability] = 1 – [Probability of Unavailability] (eq3)

And:

[Probability of Unavailability] = 1 – [Probability of Availability] (eq4)

Now:

Stock-Out-Risk is defined as:

[Stock-Out-Risk] = [Probability of Unavailability] x 100% (eq5)

Or:

[Stock-Out-Risk] = (1 – [Probability of Availability]) x 100% (eq6)

By transposing we get:

[Probability of Availability] = 1 – ([Stock-Out-Risk] / 100%) (eq7)

Therefore, we have proven the relationship between the [Probability of Availability] and [Stock-Out-Risk].

Proof 2

[Mean Time Between Stock-Out] and [Probability of Availability]

We now prove the relationship between [Mean Time Between Stock-Out] and [Probability of Availability]

[Mean Time Between Stock-Out] = [Replenishment Delay] / [Probability of Unavailability] (eq8)

But:

[Probability of Unavailability] = 1 – [Probability of Availability] (eq9)

Therefore:

[Mean Time Between Stock-Out] = [Replenishment Delay] / 1 – [Probability of Availability] (eq10)

Or:

[Probability of Availability] = 1 – ( [Replenishment Delay] / [Mean Time Between Stock-Out] ) (eq11)

Example 1

Convert [Probability of Availability] to  [Stock-Out-Risk]

A procurement authority states:

All spare parts shall have a [Probability of Availability] of greater than 0.95 (or 95%) measured in a 30-day period.

Convert this into a corresponding [Stock-Out-Risk] goal:

Equation 5a states:

[Stock-Out-Risk] = (1 – [Probability of Availability]) x 100%

[Stock-Out-Risk] = (1 – 0.95) x 100%

[Stock-Out-Risk] = 5%

Therefore, we can convert the statement to read:

All spare parts shall have a [Stock-Out-Risk] of less than 5% measured in a 30-day period.

Example 2

Convert [Probability of Availability] to  [Mean Time Between Stock-Out]

A procurement authority states:

All spare parts shall have a [Probability of Availability] of greater than 0.95 measured in a 30-day period.

Convert this into a corresponding [Mean Time Between Stock-Out] goal:

Equation 9 states:

[Mean Time Between Stock-Out] = [Replenishment Delay] / 1 – [Probability of Availability]

[Mean Time Between Stock-Out] = 30/(1-0.95)

[Mean Time Between Stock-Out] = 600 days

Therefore, we can convert the statement to read:

All spare parts shall have a [Mean Time Between Stock-Out] of greater than 600 days.

Notice that the [Mean Time Between Stock-Out] encompasses both the availability figure and the 30-day period in one single parameter.