Spare Parts and Supply

Control Objectives for Spare Parts and Supply

(a) To ensure that adequate stocks of spare parts are maintained to support
customer requirements and future servicing requirements;
(b) To ensure that all stock issues/movements are valid, authorised, and
accounted for;
(c) To ensure that under-stocking, over-stocking and obsolete holdings are
avoided;
(d) To ensure that spares can be cost effectively produced or purchased in
good time to support requirements;
(e) To ensure that stocks are accurately valued and periodically verified;
(f) To ensure that re-order levels are accurately determined and effectively
used to avoid out-of-stock situations;
(g) To ensure that spares used for warranty and other non-chargeable work
are identified and costed;
(h) To ensure that chargeable spares are invoiced to customers at authorised
prices; and
(i) To ensure that persistent faults relating to components are accurately
identified and followed up with either the production function or the relevant
external supplier.

Risk & Control Issues for Spare Parts and Supply

1 Key Issues

1.1 What measures ensure that stocking levels of spare parts are
accurately and cost effectively determined in order to support anticipated
demands?
1.2 What mechanisms prevent either under or over-stocking of spare
parts?
1.3 What processes ensure that all stock movements are valid, authorised
and correctly accounted for?
1.4 Are re-order levels realistically set and effectively used to trigger the
required (and authorised) production or purchase?
1.5 Are all production runs and purchase orders suitably authorised and
optimised for quantity and price (i.e. how are uneconomic requests
avoided)?
1.6 How does management ensure that stocks of spare are accurately
and appropriately valued in the accounts (and how can they be sure that the
stocks actually exist)?
1.7 Are all the costs associated with the usage of spare parts accurately
identified, accounted for, and effectively monitored against expectations?
1.8 Are spare part costs for chargeable (i.e. non-warranty) work
validated, accounted for, and recovered from customers (and what measures
prevent the unauthorised or invalid usage of components)?
1.9 How does management ensure that persistent component faults or
problems are promptly identified, verified and appropriately followed-up?

2 Detailed Issues
2.1 Has management defined, documented and authorised a policy governing
the permitted use of spares, and how do they ensure that it is fully complied with?
2.2 What is the applied policy on supplying components for discontinued
products, and how is the accumulation of obsolete spares avoided?
2.3 What measures prevent the unauthorised usage or pilferage of spares (and
would such events be capable of detection)?
2.4 Are accurate sales records maintained to support decision making about
potential spares stock requirements (and if so, how does management ensure the
accuracy of such data over time)?
2.5 Are the relevant stock records subject to periodic and effective
verification, and how are variances and anomalies reported and resolved?
2.6 Are production and supplier lead times accurately identified and taken
into account when determining re-order levels for spares?
2.7 How does management ensure that the cost of components recovered
from customers continues to accurately reflect their true cost and the required
margins?
2.8 What measures prevent either unauthorised access to, or unauthorised
amendment of stock and costing records?
2.9 Would potential design or performance weaknesses be promptly detected
and resolved?
2.10 How is the accuracy of data input from other systems (i.e. the warranty
customer records) confirmed?
2.11 How is the accuracy of data output to other systems (i.e. accounts
receivable for chargeable spares or the stock control system) confirmed?